Private equity was the most lucrative asset class for CalPERS, returning an annualized 11.46% net of fees for the 10 years ended Dec. 31, according to a CalPERS analysis.
However, private equity also cost the retirement system the most fees of any asset class, $494 million — about half of what CalPERS paid external managers — in the state's fiscal year ended June 30. Those costs do not include carry fees.
The figures were disclosed Monday at an investment committee meeting of the $258.3 billion California Public Employees' Retirement System, Sacramento, as the investment committee discussed whether it should and can increase internal management of assets to save money. The ongoing discussion is also part of a review of CalPERS' asset allocation. The CalPERS investment committee is scheduled to determine a new asset allocation by the end of the year for 2014, 2015 and 2016.
While the pension fund does not have the capabilities to manage private equity strategies in-house, it is attempting to reduce fees through co-investments, said Janine Guillot, CalPERS chief operating investment officer.
About half of CalPERS' portfolio is internally managed, but it is almost exclusively in equities and fixed income. Private equity accounts for about 14% of CalPERS' portfolio.
Global equities was the second-most lucrative asset class over the 10-year period, accounting for annualized returns of 7.96%; followed by fixed income, 7.85%; absolute-return strategies, 5.23%; and real assets, 3.52%.