By David G. Barry
Seeking to hit
its new allocation targets for private equity and real assets, the
California Public Employees’ Retirement System (CalPERS) is moving to significantly
increase its investments in the sectors and do so more efficiently.
According to information that was to be presented by Chief Investment Officer Nicole
Musicco to the plan’s investment committee, CalPERS is looking to invest a
record $17 billion into private equity in 2022. It will seek to commit $15
billion or more annually to reach or stay at its 13% target allocation.
CalPERS’ board approved increasing its target allocation to private equity to
13% from 8% in November. As of June 30, CalPERS’ actual allocation to private
equity was $52.8 billion, or 12% of its $440 billion fund.
In materials sent to the investment committee, CalPERS said it committed up to
$5.2 billion in 12 private equity funds between April and June. The largest of
those commitments was up to $1.2 billion in Veritas Capital’s Redwood Lane
Capital, L.P. Other firms backed during that period included Silver Lake
Partners, Thoma Bravo, Bessemer Venture Partners and Advent International.
CalPERS’ biggest year in terms of committing to private equity was 2021, when
it deployed $13.8 billion. However, between 2009 and 2018, the plan averaged
$2.7 billion annually, leading to what CalPERS called “persistent
under-exposure to private equity relative to target allocation.” In fact, it
estimates that this so-called “lost decade” of investing in private equity cost
it more than $11 billion.
At the November meeting, CalPERS also moved to increase real assets’ target
allocation by 2% to 15%. CalPERS, according to a report, has reached
that target, reporting that as of June 30 it had $69.6 billion, or 15.8%. A
big part of that push is in infrastructure, with CalPERS saying it needs to
invest more than $5 billion annually in
the segment.
According to the report, CalPERS committed nearly $6 billion to infrastructure
during the 2021-22 fiscal year and is seeking to invest $7.5 billion during
the 2022-23 fiscal year.
In its investment report, it said it committed $3 billion to seven real assets
funds between February and June. Blackstone Mileway Logistics L.P. and IFM
Global Infrastructure, L.P. each received $750 million, topping the list.
In addition to deploying more capital, Musicco also is seeking board approval to
increase the size of fund investments, co-investments and secondary
transactions that she, Deputy CIO Dan Bienvenue and the managing
investment directors for the various private asset segments can OK without
board approval. The deputy CIO position currently does not have the right to
approve such transactions.
In remarks to the committe, Musicco said the moved are aimed at putting CalPERS “in a much more competitive position.”
Under the proposal, the CIO – or in this case Musicco – would be able to
approve private equity fund commitments of up to $3 billion, co-investments up
to $1.6 billion, customized investment accounts up to $4 billion, secondary
market purchases up to $3 billion and secondary sales of funds and customized
investment accounts up to $6 billion.
Currently, the CIO is limited to $1 billion for funds, $600 million for
co-investments, $1.9 billion for customized accounts and $1.7 billion for
secondary transactions.
The deputy CIO is currently not authorized for such transactions.
The person in that position – currently Bienvenue – would have authority to
approve up to $2 billion for funds, $1.25 billion for co-investments, $3
billion for customized accounts, $2 billion for secondary market purchases and
$4 billion for secondary sales.
The managing investment director of private equity – Greg Ruiz – would
see his approval authority related to fund commitments go from $500 million to
$1.25 billion, while co-investments would increase from $300 million to $1
billion and customized investment accounts would go from $1.3 billion to $2
billion. The MID is currently allowed to approve up to $900 million in
secondary transactions. Under the new proposal, the person would be able to
make secondary purchases of up to $1 billion and sales of up
to $2 billion.
On the real assets side, there are two proposed changes.
The first is that the CIO would have the ability to approve up to $6 billion in
commitments for infrastructure compared with $2 billion currently, and in line
with what the CIO is now able to approve for real estate transactions.
Additionally, the deputy CIO would have the authority to approve real estate
commitments of up to $4.5 billion, infrastructure investments up to $4 billion
and forestland commitments up to $2 billion.
The proposal also calls for increases in authority for the CIO, deputy CIO and
managing investment director related to private credit investments as well.
With the increase in responsibility would come increased reporting to the board
prior and after an investment has been made.
The proposals received their first read
at the September investment committee meeting. They’ll be reviewed again at the November investment committee meeting.