CalPERS weighs direct investments in private equity

The $323bn California Public Employees’ Retirement System (CalPERS) is exploring making direct investments in private equity, and is considering a wide range of options as it reviews its long-term strategy for the asset class.

At an offsite meeting in Monterey, California, CalPERS staff discussed options on a continuum from low-risk, high-cost, and relatively simple investments, such as investing in funds of funds, to higher-risk, more complex investments, including direct investment through CalPERS staff. CalPERS noted that direct investments would require very high reliance on expensive internal talent.

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Published by Money Management Report/Pageant Media.

CalPERS feeling the heat on PE investments

The largest public pension fund in the U.S. is feeling pressure over its private equity investments, and criticism over fee transparency has gotten under the skin of the giant fund’s CIO.

Although the California Public Employees’ Retirement System (CalPERS) has attracted criticism before over fees and risk, the negative attention comes at a time the fund is preparing to review its private equity strategy. The discussion at the fund’s June meeting fueled speculation that CalPERS could pull back from private equity, which currently accounts for $25.9bn of the fund’s $323.8bn portfolio.

Tensions were obvious from the start of the meeting, which took place on June 19. CIO Ted Eliopoulos opened with an unusual defense of a staff that he said had been “denigrated and attacked” over its investments in private equity. Eliopoulos suggested that CalPERS might be near a “tipping point,” where negative attention is “making it increasingly difficult for CalPERS to compete successfully in the private equity marketplace.” At the end of his opening statement, most board members offered applause in support of the private equity staff in attendance at the meeting.

“What happened was, Ted came out and had a pity party,” CalPERS board member J.J. Jelincic told MMR.

CalPERS’ private equity investments first became a particular target for criticism in 2015, when its investment staff reported that CalPERS didn’t have the ability to track carried interest payments that the fund made to private equity firms. Even with that history, the June meeting marked a notable shift in tone, and the CIO’s comments pushed other board members to publicly declare their support for private equity.

Read the full story: CalPERS feeling the heat on PE investments

Published by Money Management Report/Pageant Media.

LACERS scraps PE consultant search, accuses incumbent of fudging numbers

The $15.7bn Los Angeles City Employees Retirement System (LACERS) scrapped an ongoing search for a private equity consultant, with a member of the board expressing no confidence in the incumbent consultant and accusing the firm of inflating its recent performance numbers.

The LACERS board intended to choose between incumbent Portfolio Advisors over TorreyCove Capital Partners in its search for a private equity consultant after a final review of performance information from both firms. But instead of choosing a new consultant, the board canceled its RFP and decided to begin anew after board members expressed a lack of confidence in either finalist or the RFP process.

CIO Rodney June was prepared to recommend Portfolio Advisors based on “stronger relative performance” for the years 2005 to 2013, according to the meeting agenda. But board member Nilza Serrano expressed no confidence in Portfolio’s numbers, saying that the firm had misled the board by excluding a major client, the Pennsylvania Public Schools Employees Retirement System, from its performance results.

Full story: LACERS scraps PE consultant search, accuses incumbent of fudging numbers

Published by Money Management Report

Gov’t Contracting Slump Could Spark PE Feeding Frenzy

With federal contracting budgets on the wane, private equity firms are looking to snatch up bargains as contractors streamline their businesses and sell off divisions that could see reduced profits or contribute to organizational conflicts of interest.

This should be a busy year for mergers and acquisitions in the government contractor market, experts said, attributing part of the change to declining budgets and the uncertainty around sequestration, a series of automatic budget cuts set to slash about $52 billion from 2013 federal spending unless Congress agrees on an alternative deficit reduction package by March 1. Private equity firms will look to profit from contractors’ belt-tightening, while also seeking to purchase smaller companies in hot areas that will continue to see government investments, such as cybersecurity.

“Government contractors are looking to shed some of their businesses and divisions that are not going to give them the returns they had captured in previous years,” said Scott M. Heimberg, a partner with Akin Gump Strauss Hauer & Feld LLP. “I think that gives some opportunities to private equity companies who are looking for bargains out there.”

Check out the full article, published by Law360: