CalPERS posts 31% private equity gain

The $203bn pension has had its private equity portfolio rise, but experienced a 37.1% decline in real estate for the year ended 30 June.

The California Public Employees’ Retirement System’s private equity portfolio soared in the 12-month period that ended 31 March, posting returns of more than 30 percent. The figure is a drastic change from the private equity portfolio’s performance in the prior year, which was -24.6 percent.

The private equity returns contrasted significantly with the value of the $203 billion pension’s real estate portfolio, which dropped 37.1 percent over the year period. The results for private equity and real estate lagged a quarter behind results in other asset classes, which were measured on the year-long period that ended 30 June, the pension said.

“Real estate declines reflect write-offs and de-leveraging a portfolio that relied too heavily on borrowing at the peak of the bubble in 2005 and 2006,” Joseph Dear, chief investment officer of CalPERS, said in a statement.

“Our new real estate team has been completely restructuring 24 separate accounts. We’re moving back into core properties and accepting managers in whom we have confidence. We’re letting go underperforming mangers and are looking for the best possible deals as they become available in a still sluggish market.”

The commodities, infrastructure, forestland and inflation-linked bonds portfolio was up a combined 2.7 percent over the time period. The pension overall posted a total gain of 11.4 percent, which CalPERS said “exceeded the long-term annualised earnings target of 7.75 percent”.

CalPERS was able to save $100 million over the time period in fee reductions with external managers. The pension, according to the statement, has eliminated low-performing funds from its portfolios and is developing new risk management tools. It's not clear if CalPERS has terminated relationships with private equity managers, and CalPERS officials did not return requests for comment as of press time Thursday.

The pension has reached agreement with firms like Ares Management, which agreed to cute $10 million in fees over five years. Apollo Global Management also agreed to cut $125 million over five years in fees in accounts the firm manages exclusively for CalPERS.

CalPERS’ private equity programme has $29.1 billion in assets. The pension’s alternatives programme has been run since 2004 by Leon Shahinian, who was put on leave earlier this year because of his alleged relationship with a placement agent who is being sued in California. The pension has declined several requests for information about Shahinian’s status.

In June, the pension proposed to reduce the use of placement agents by creating an online service for managers to electronically submit investment proposals. The system was set to launch this month.