CalPERS’ investment committee to review private equity policy on direct investments

CalPERS' investment committee will review the initial version of a new private equity investment policy statement that makes a number of changes including removing direct investments from the staff's oversight, according to materials for the investment committee's June 18 meeting.

The current investment policy statement of the $356.5 billion California Public Employees' Retirement System, Sacramento, states that the staff will manage the private equity program with specific criteria for investing in funds; direct investments and co-investments; and customized investment accounts.

The new wording removes all references to direct investments. However, the staff still has some authority over co-investments.

The new policy also eliminates the number of categories in which the staff has authority to make investments without investment committee approval. For instance, the current version of the policy indicates that the staff had specific authority limits for top-quartile managers, second-quartile managers, emerging manager teams, co-investments and secondary market managers. The new version would eliminate quartile distinctions.

A staff memo stated that the changes were being made because they align "with CalPERS' initiative to reduce the number of external managers (from over 300 to 100 across the total fund), and is more compatible with a shift toward fewer, potentially larger commitments overall."

The draft of the new policy statement also gives the chief investment officer authority to make up to $1 billion commitments to funds and the managing investment director could make commitments of up to $500 million to funds without investment committee approval, rather than the current authority to commit up to 8% of the private equity target allocation. For customized investment accounts, the target limits are $1.9 billion for the CIO and $1.3 billion for the managing investment director.

The managing investment director position at CalPERS is currently vacant. Real Desrochers, CalPERS' former managing investment director left CalPERS last year.

CalPERS is currently considering whether to establish a new model for making direct investments that would include creating a separate corporation with its own investment staff. A staff report for the upcoming meeting notes that should this change in model be adopted, the staff would return to the investment committee with additional changes to the investment policy statement.