CalPERS' $31.1 billion private equity program, already reduced, will effectively be experiencing more cuts, under an interim allocation plan approved Monday by the system's investment committee.
The reductions are coming because of a lack of quality investment opportunities, investment officials at the California Public Employees' Retirement System have said.
CalPERS has nearly 11% of its $289.6 billion in assets invested in more than 700 private equity funds, with a 14% target allocation.
A reduction in the target allocation to 10% as of July 1 already is planned. Under the the new plan approved Monday, an automatic phase-in program that was to boost the private equity target to 12% by July 1, 2016, will no longer occur.
The system's private equity portfolio managers are working on a plan to pare the number of managers and funds in the program. Sacramento-based CalPERS' actual private equity allocation is currently 10.9%, so achieving the target 12% rate would actually mean an increase in investments, according to material presented at the investment committee meeting.
The boost back to 12% has caused a debate in the past several months among CalPERS board members and consultants as to whether that target could be achieved by July 1, 2016, even with a gradual phase-in.
There was little discussion Monday about the change, but investment committee member J.J. Jelincic cast the sole vote against the new plan. He argued a formal change was not necessary in the asset allocation plan because the plan already allowed a moving target range for investments in a specific asset class.
In a report presented to the investment committee in April, CalPERS consultant Wilshire Associates said CalPERS investment staff's own models had shown “it would be virtually impossible” to reach the 12% target selected by the investment committee in February 2014 within two years without a significant decrease in the guidelines for quality private equity investments.
The board agenda material from Monday's meeting shows that CalPERS investment staff is in agreement with Wilshire as is CalPERS' alternatives consultant, Pension Consulting Alliance.
Material from the April investment committee meeting shows that CalPERS would have had to commit $10.5 billion in new private equity investments overall in the next few years to have met the 12% private equity allocation by 2016.