Efforts by CalPERS officials to reduce the fees they pay private equity general partners have hit a roadblock due to a limited supply of top-performing institutional-quality funds.
“It's frustrating,” CIO Theodore Eliopoulos told the pension fund's investment committee Monday, noting the lack of supply means it's difficult to negotiate better terms.
Mr. Eliopoulos' comments came after the release of a private equity update report at Monday's meeting.
“The supply of institutional private equity is significantly less than the demand for these funds from limited partners,” the report said.
“CalPERS annual commitments have ranged from 0.3% to 2.8% of limited partners' yearly commitment between 2002 and 2015, the report said.
The $294.1 billion California Public Employees' Retirement System, Sacramento, is one of the largest private equity investors in the world with about $29 billion invested, with another $10 billion in uncalled capital. But the report said CalPERS represents a small percentage of general partners' fundraising.
The private equity report cited a typical fee arrangement with a private equity buyout fund of a management fee of 1.5% to 2% and carry fees of 20%.
Mr. Eliopoulos said at the meeting that efforts are continuing with the Institutional Limited Partners Association to get better fee terms when possible, as well as to get more standardized reporting about fees, but it is a multiyear effort.
CalPERS paid about $1 billion in private equity fees in the 12-month period ended June 30, 2015, including management and performance fees. It was the first time CalPERS had reported the performance fees.
CalPERS' lack of data on private equity performance fees became a major controversy last year. In June 2015, pension fund officials disclosed they could not account for how much the retirement system paid in performance fees for the asset class even though it was CalPERS' largest external management cost.
