CalPERS Chief Investment Officer Theodore Eliopoulos opened up what was supposed to be a workshop on the pros and cons of private equity Monday with a quick conclusion: Private equity is CalPERS’ best performing long-term asset class.
Mr. Eliopoulos told workshop attendees there is no substitution for the asset class, noting that for the five years ended June 30, CalPERS’ private equity portfolio returned an annualized 14.4%, compared with public equities’ 12.9%. He said that over 10 years the difference was much wider, 11.9% for private equity vs. 6.6% for public.
Monday’s workshop — which drew academics, other pension fund executives and lawyers and consultants — focused on how the Sacramento-based California Public Employees’ Retirement System can have a better private equity program.
One question raised was how the $296.7 billion pension system could get better fees from its general partners.
Real Desrochers, managing investment director-private equity, said one of the issues is that the supply of institutional private equity funds is significantly less than the demand from limited partners. ”Many — and (a) growing number of — LPs compete for allocations from a limited supply of outperforming managers,” Mr. Desrochers said.
He cited as an example an unidentified strong performing manager whose $10 billion fund was oversubscribed by billions of dollars only a few months after releasing marketing materials. Mr. Desrochers said CalPERS had invested in all six of the manager’s prior funds, but even then did not receive its full requested allocation. “CalPERS tried unsuccessfully to change the terms” to get better fees but the manager refused, he said.
CalPERS had $28.9 billion invested in private equity funds.
The workshop comes as CalPERS is expected to announce in the next few weeks the amount of private equity carried interest fees it pays.
CalPERS staff has been criticized by some board members for their inability to say how much the system pays in such fees. Officials at the fund said they had upgraded computer systems to be able to track the data.