CalPERS received distributions from private equity partners of $13.3 billion in the 18-month period ended June 30, a figure that is shrinking and expected to continue to shrink even further in coming years, said a review of its private equity program to be discussed at the pension fund’s investment committee meeting Nov. 16.
Distributions were $8.9 billion in the 2014 calendar year and $4.4 billion in the first six months of 2015, compared to $10.7 billion in calendar year 2013, according to the review.
But low levels of capital calls to private equity funds are expected to result in distributions dropping even more over the next five years, the review said. While the $296.7 billion California Public Employees’ Retirement System, Sacramento, has $28.9 billion invested in private equity funds, it also has more than $14 billion that CalPERS committed to private equity funds but general partners have not deployed, the review shows.
Private equity managers as of late have been struggling to find investments that are not overvalued, lowering the availability of investments worldwide.
The review shows CalPERS’ capital calls to private equity partners were $6.1 billion in calendar year 2010, but dropped to $3.7 billion in 2013 and then were up slightly in 2014 at $4.3 billion. In the first six months of 2015, capital calls totaled $1.8 billion.
The program review comes as CalPERS is expected to announce in the coming weeks the full extent of fees it pays to private equity partners. CalPERS spokesman Joe DeAnda said the date for the release has not yet been set.
After criticism from board members about the lack of data, CalPERS officials announced in July it would report in the fall the total carried interest it paid to private equity partners for the fiscal year ended June 30. CalPERS officials had said they had previously been unable to track the data, but a new computer system is enabling the pension fund do so for the first time.
CalPERS also scheduled a special workshop on Nov. 17 to discuss the future of private equity as an investment for the retirement system.
As part of a prepared presentation, CalPERS officials said management fees paid to private equity managers during the investment period of a fund have been going down. The material said the average management fee in the fiscal year ended June 30, 2015, was 1.12%, down from 1.17% in the 2014 fiscal year and 1.22% in the 2013 fiscal year.
It also says the percentage of carried interest CalPERS is sharing with private equity partners is going down, at 14.8% in the current fiscal year, down from 15.51% in the previous year and 16.92% the year before.