Don't kill in-state investment plan, CalPERS panel urges

CalPERS' investment committee urged staff not to move ahead with plans to end the pension fund's $1.035 billion private equity program that targets California-based companies.

Staff at the $237.5 billion California Public Employees' Retirement System, Sacramento, has called for a five-year wind-down of the program and did not back off that recommendation on Monday, although a panel of investment staff members led by Real Desrochers, senior portfolio officer, private equity, said they would work to develop a new plan for in-state investments.

Committee member and Chief Deputy State Treasurer Steve Coony said the retirement system needed to increase funding for such a program, not reduce it.

Mr. Coony and other committee members noted that even though investment returns were below par for the private equity program, the program has benefits such as creating jobs and development in economically depressed areas of the state.

The most recent commitment in the program, $560 million to a Hamilton Lane fund of funds in 2006, has shown an internal rate of return of 0.86% as of Dec. 31 compared to its benchmark's 6.9% return.

Another $475 million committed to 10 managers in 2001 has shown an annualized -6.4% IRR as of Dec. 31 when the performance of one of the funds — the GCP California Fund, with a 94% IRR — was excluded, according to an analysis of the California-only private equity program presented to the board. The GCP fund had reaped its gain from investing in a swimming pool supply company, committee members were told.

CalPERS has $23.6 billion invested in various California projects, including the $1.035 billion in-state program, of which the largest amount — $15 billion — is in stock of California-based companies, followed by $4.9 billion in California real estate.

Also Monday, investment staff said the retirement system is continuing to reduce venture capital commitments because of underperformance. CalPERS had $2.1 billion as of June 30 in venture capital and an additional $500,000 uncommitted, CalPERS statistics show. The portfolio produced a 1% annualized return for the five years ended June 30.

The investment committee last year reduced the venture capital target suballocation to 1% of the private equity portfolio. It is now at 6%, CalPERS statistics show.