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.

Read the full story: CalPERS needs to upgrade its skills to succeed in private equity, CIO says

Published by Money Management Report/Pageant Media.