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Private Equity

BlackRock is said to be in talks for CalPERS buyout business

CalPERS is talking to BlackRock (BLK) about outsourcing its private equity business as it seeks to control fees and offset anemic returns, people familiar with the matter said.

The $333.3 billion California Public Employees' Retirement System is in discussions with BlackRock about managing some or all of its $26.2 billion in private equity investments, said the people, who asked not to be identified because the conversations were private. The discussions are preliminary, they said.

CalPERS spokesman John Osborn and Brian Beades, a spokesman for BlackRock, declined to comment.

CalPERS is reckoning with criticism over its private equity investing and how it discloses and accounts for fees. The pension fund convened a panel of executives, including Carlyle Group's Sandra Horbach and BlackRock's Mark Wiseman, to discuss possible models during a board meeting in July. CalPERS leadership raised questions about challenges of bringing direct-investing capabilities in-house, contracting with outside managers or creating an independent entity with appropriate oversight.

CalPERS is trying to improve its investment performance and reduce fees amid low returns across many asset classes. In December, CalPERS voted to cut its long-term return target to 7% from 7.5% a year, a move that will require larger contributions from workers and taxpayers.

The mandate would be a big win for BlackRock, which is best known for offering lower-fee passive products, such as iShares exchange-traded funds. The world's largest money manager, which oversees $5.7 trillion in assets, has been trying to expand its more lucrative alternatives business to increase fee revenue and meet client demand for investments that aren't closely correlated to the stock and bond markets.

BlackRock's $128 billion alternatives business includes private equity, real estate, infrastructure and hedge funds. The firm hired Mr. Wiseman last September as chairman of the unit and global head of active equities. He previously led the Canada Pension Plan Investment Board and directed the private equity efforts at Ontario Teachers' Pension Plan.

Real Desrochers, the head of CalPERS' private equity division, resigned in April. The fund hasn't announced plans to replace him.