**California Pension Fund Maintains Commitment to Private Equity Amid Challenges**
The California Public Employees’ Retirement System (CalPERS), the largest public pension plan in the United States, remains steadfast in its commitment to private equity, despite the asset class facing difficulties in generating returns for investors during a prolonged downturn in deal activity. In a recent interview with Bloomberg TV, CEO Marcie Frost expressed strong confidence in private equity, highlighting its status as one of the pension fund’s top-performing asset classes over the past two decades.
Frost acknowledged the current “wide dispersion” in private equity performance, emphasizing the importance of identifying the “best managers” for investment. Many private equity funds have struggled with sluggish returns in recent years, as managers find it increasingly challenging to exit investments due to a slowdown in mergers and acquisitions.
For the latest fiscal year, CalPERS reported a 14.3% return on its private equity investments, which is part of a strategic shift towards more cost-effective co-investments rather than traditional fund allocations. This return, however, lagged behind the 16.8% earned by its public equity segment during the same period. Over the past two and a half years, the fund has successfully reduced fees associated with private equity investments by 10%, utilizing strategies such as co-investing in separately managed accounts.
Frost noted that CalPERS’ “strong liquidity position” has enabled the pension fund to increase its allocation to private markets. Last year, the fund raised its target allocation to 17% for private equity and 8% for private credit, while decreasing its exposure to publicly traded stocks and bonds. She pointed out that many of CalPERS’ peers are not as financially fluid, which could limit their investment strategies. Frost believes that the current allocation strategy will serve the fund well over the next four to six years.
In conclusion, CalPERS’ commitment to private equity reflects a strategic approach to navigating the complexities of the investment landscape, focusing on strong management and liquidity to optimize returns in the coming years.
**FAQ**
**What is CalPERS’ current strategy for private equity investments?**
CalPERS is focusing on increasing its allocation to private equity and private credit while reducing fees and seeking out the best managers to enhance returns amid a challenging investment environment.
