CalPERS officials are leaning in to private markets even though they expect valuations to continue to fall, said Nicole Musicco, chief investment officer of the $468.3 billion, Sacramento-based pension fund, in an interview with reporters.
"We think the private market area is a great space for us to lean into," Ms. Musicco said. In real assets, officials at the California Public Employees' Retirement System are seeing positive momentum in infrastructure, but real estate is under pressure, she said. Her team is keeping a close eye on valuations and while private equity valuations have been reduced, private equity managers are returning capital in the form of distributions in preparation for raising new funds, Ms. Musicco said.
And CalPERS is changing the way it structures its private equity investments, she said.
Ms. Musicco said there is a real opportunity for CalPERS to increase co-investments, which would cut fees, boosting returns compared with commingled funds or funds of funds.
However, CalPERS officials do expect some headwinds in the next quarter as valuations catch up with the public markets proxy, she said. At the same time, CalPERS is increasing its venture capital portfolio from virtually nothing at a time when officials expect further venture capital write-downs, Ms. Musicco said.
"We're being very careful and focused," she said.
The pension fund's private markets target allocations are 15% real assets, 13% private equity and 5% private debt. As of May 31, CalPERS' actual private markets allocations were 15.6% real assets, 12.8% private equity and 2.2% private credit.