CalPERS needs to upgrade its skills to succeed in private equity, CIO says

The $353bn California Public Employees Retirement System (CalPERS) needs to develop new expertise if it’s going to overhaul its private equity strategy, according to CIO Ted Eliopoulos.

CalPERS’ private equity portfolio is currently composed solely of traditional private equity funds run by general partners, and it has become quite good at vetting those partners and the opportunities they offer, Eliopoulos said at the mega fund’s June meeting. But that model won’t be enough to keep CalPERS near its preferred 10% allocation to private equity, which is why CalPERS is pursuing a new strategy that includes direct investments, a commitment to larger strategic partnerships and co-investments with private equity firms, and an increased focus on emerging managers.

The new strategy will require substantial additions to CalPERS’ internal skills and resources, so that it is less reliant on its private equity managers, Eliopoulos said.

“Our private equity program, our team, our systems, our methods are really geared all towards performing this function of selecting an external general partner,” Eliopoulos said. “The [new strategy] really seeks to add to this capacity the ability to select and invest in individual portfolio companies. This is a new domain.”

The board has not made a decision on the new strategy, but board members generally sounded positive when discussing the new model at the meeting. The plan also received an endorsement from University of California professor Ashby Monk, who said that more public pension plans could benefit from thinking outside the box on private equity.

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Published by Money Management Report/Pageant Media.

Montana explores multi-asset strategies, commits $125m to private markets

The Montana State Investment Board is researching multi-asset strategies to build out a new diversifying strategies, and may also be on the lookout managers in its natural resources and real estate portfolio.

The fund, which manages $18.4bn in assets in several pension funds and state trusts, including $11.4bn in pension assets, also reviewed $125m in private markets commitments at its May 22 meeting.

Diversifying assets is a new asset class for the state, which gave investment staff the go-ahead in February to begin allocating to a target of 0% to 4%. The asset class includes a potentially wide mix of public markets investments that seek to provide downside protection while maintaining liquidity and providing a better return than just holding onto cash. Creating a new asset class was necessary, according to CIO Joe Cullen, to allow the state pension funds to take advantage of multi-asset strategies and other investments that otherwise would not fit within the state’s asset allocation structure.

Montana has started building the asset class with an internally-managed strategy focused on long duration U.S. Treasuries, and currently has an allocation of $26m, or 0.26% of its pension portfolio.

“If interest rates continue to rise meaningfully, we’ll probably add a little bit more that that position, but more meaningful to this asset class of diversifying strategies, [director of public markets] Rande [Muffick] and the public markets team are looking at some of these multi asset class managers,” Cullen said at the May meeting. “We’re looking, we’re not going to say ‘oh by this date we’ll have one’ but we’re going through a process now during the summer that if one comes out of that process, or two, over the summer, then that’s something we’ll bring to you in the fall.”

Read the full story: Montana explores multi-asset strategies, commits $125m to private markets

Published by Money Management Report/Pageant Media.