CalPERS' private equity portfolio made up 14% of the total portfolio, which was 1 percentage point over its target allocation. Dan Bienvenue, interim chief investment officer, said that if the committee didn’t adopt the new asset allocation, another downturn could force the pension fund to be over its outside target range. CalPERS' private equity allocation has a target range of plus or minus 5%, which now gives pension fund the ability to have a maximum of 22% without being over its maximum allocation.
A staff report noted that private equity was the pension fund’s top-performing asset class in the 10 years ended June 30, with an annualized return of 11.8% compared to 8.9% for public equity over the same time period.
Some trustees questioned cutting fixed income when it was producing better returns than it had in years, with lower fees and more liquidity. CalPERS' private equity return was 8.8% for the one year, underperforming its 22.8% benchmark, and private debt earned 13.3%, underperforming its benchmark. But private equity outperformed or was on par with its benchmark for all other time periods.
A couple of trustees said they wanted to wait until a new chief investment officer is in place, which is expected at the end of March.
However, CalPERS CEO Marcie Frost said she had spoken to all of the CIO candidates and they all favored the new asset allocation.
Trustees noted that CalPERS is scheduled to conduct an asset-liability review starting in February 2025 and this change is occurring between full asset-liability reviews. Trustee Ramón Rubalcava asked whether making a big change before the scheduled asset-liability review isn’t market timing.
Bienvenue and Frost both said that the board had made an asset allocation change in midcyle in 2019. Anton Orlich, managing investment director, private equity said that this is not market timing because fund officials plan to keep making the same amount of commitments to private equity each year, between $5 billion and $6 billion.
