CalPERS staff wants freedom to concentrate their bets with the biggest private equity firms and is seeking greater discretion to make bigger private equity commitments without board approval. Private equity firms are raising much larger funds, and "the largest funds will enjoy a competitive advantage to source the best transactions and continue to attract/retain the brightest investment professionals," the staff of the $181.9 billion system argued in a memo to the investment committee.
Officials of the California Public Employees' Retirement System, Sacramento, seek approval to commit up to 10% of net active alternative investments with a single firm, double the current 5% limit. CalPERS currently has $8.6 billion invested in alternatives.
For top-quartile funds, staff is requesting that the senior investment officer in charge of the alternatives program be allowed to commit up to $400 million or 20% of a fund's final capitalization, whichever is less, up from $200 million or 15% of the fund's size, whichever is less. CalPERS' CIO would have discretion to commit the lesser of $800 million or 30% of a fund's final size, up from the lesser of $400 million or 25% of fund size currently.
For second-quartile funds, the top alternatives officer would be allowed to commit the lesser of $100 million or 10% of fund size without board approval; currently, no such discretion exists. CalPERS' CIO would be permitted to commit the lesser of $200 million or 20% of a fund's final size, double the current limits. CalPERS invests in a small number of second-quartile funds that are expected to generate top-quartile returns in the future.
The CalPERS investment committee will vote on the proposal at its May 16 meeting.