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CalPERS officials say combining private, global equity benchmarks would help staff

CalPERS Managing Investment Director Eric Baggesen believes combining staff will provide better overall outcomes.

CalPERS' chief investment officer said Monday that combining the pension fund's private equity and global equity benchmarks would ease pressure on its private equity staff from feeling obligated to make private equity investments.

Theodore Eliopoulos told the pension fund's investment committee meeting that aligning the $26 billion private equity portfolio and the $148 billion public equity portfolio would mean the best investments could be chosen, regardless of asset class.

Finding suitable private equity investments has become a big issue for CalPERS and other institutional investors. As of June 30, the last time the data was released, CalPERS had $13.7 billion in commitments that had not yet been called because private equity general partners are finding that valuations are too high for potential investments.

Eric Baggesen, managing investment director, asset allocation/risk management, told the investment committee that the merging of the benchmarks would force the private equity investment staff and global equity investment staff to work together instead of concentrating on their own investment bucket.

He said the result would be the staff of the two asset groups looking at the overall investment returns, instead of their own investment class, a positive break from how the staff has traditionally worked.

No vote was taken Monday. A formal decision will be made by the investment committee late this year or early next year, before CalPERS sets its asset allocation in February for the fiscal year starting on July 1, 2018. The pension fund would still have a target allocation to private equity and equities separately because without it, Mr. Eliopoulos said, they could not determine an expected rate of return.

The $320.7 billion California Public Employees' Retirement System, Sacramento, uses a custom benchmark for private equity, consisting of the FTSE U.S. Total Market index and the FTSE All World ex-U.S. index, plus 300 basis points. The proposed new benchmark would consist of the FTSE Global All-Cap index — now used for public equity — plus a yet-to-be-determined return premium.