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.

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

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.

Institutional appetite drives a rise in PE ‘mega-funds’

As institutional investors try to ramp up or maintain their commitments to private equity without spreading themselves thin on due diligence efforts, their increasingly concentrated investments have helped support a trend toward private equity mega-funds.

Concentration at the top poses some challenges, but investors aren’t fazed: Since 2015, fewer investors have sought to make four or more fund commitments annually and more are gravitating towards making two to three fund commitments, perhaps suggesting an increase in ticket sizes, research firm Preqin found. The increased demand, as well as a need to reinvest capital from older private equity investments, and new players like sovereign wealth funds and wealthy individuals, have pushed dry powder held by private equity fund managers to a record high of $1.09tn as of
March 2018.

Private equity managers with good track records are in high demand, and those managers are increasingly able to find enough capital to scale their efforts to previously-unheard of levels, according Christopher Elvin, head of private equity products at Preqin.

“There looks to be a trend towards mega-funds,” Elvin told MMR. “The private equity industry is seeing huge inflows, but investors are increasingly choosing to sink their capital in the largest funds. LPs (Limited partners) prefer to be involved with fund managers that have been successful in the past – with the expectation that those fund managers will be able to generate large returns in the future – and generally fund
managers don’t tend to raise large funds without building up a track record.”

Read the full story: Institutional appetite drives a rise in PE ‘mega-funds

Published by Money Management Report/Pageant Media.

Oregon CIO uncomfortable with adding more investment risk

Oregon’s investment chief would not recommend adding any more investment risk to the state’s $100bn portfolio, saying in a recent meeting that investment income alone will have a tough time bridging the state pension’s $22bn unfunded liability.

The Oregon Investment Council, whose pool of assets includes the $76bn Oregon Public Employees’ Retirement Fund, had a special meeting in late April to discuss board governance, policy, and its appetite for investment risk. CIO John Skjervem said at the meeting that he appreciated the desire to maximize risk-adjusted investment returns, but said that investment staff couldn’t simply kick their strategies into higher
gear.

“We don’t have another gear to go to,” Skjervem said. “This is as aggressive a portfolio as I feel comfortable managing, and I believe to a person my staff feels the same way.”

Read the full story: Oregon CIO uncomfortable with adding more investment risk

Published by Money Management Report/Pageant Media.

LACERS remains indecisive on private equity

The Los Angeles City Employees’ Retirement System (LACERS) remains indecisive about how best to proceed with its 14% allocation to private equity, with one member of the investment committee suggesting looking for a wider pool of consultants before proceeding with interviews of the three finalists identified after a recent search.

The $17bn fund’s private equity program has been unsettled since July of 2017, when the board blew up an ongoing RFP process and started from scratch. At that time, a board member accused the incumbent consultant – and investment staff’s preferred option for a new contract – of fudging the performance numbers for private equity programs managed on behalf of other pension funds. Other pension fund clients stepped to the consultant’s defense, and the consultant explained its methodology in a later meeting, but the bad blood caused by the incident caused the consultant, Portfolio Advisors, to withdraw from consideration during a rebooted RFP process. Now, LACERS is once again on the verge of making a selection during the rebooted consultant search, and once again, some board members seem dissatisfied with the process.

Read the full story: LACERS remains indecisive on private equity

Published by Money Management Report/Pageant Media.

 

Religious endowments move to the forefront of ethical investing

Churches and their endowments have long been leaders in socially responsible investing, but those efforts are increasingly moving beyond divestment into more proactive approaches, including impact investing and corporate engagement.

In addition to negative screening and divestment, religious organizations are embracing shareholder engagement, thematic investments — choosing to invest in companies or industries that are aligned with their organization’s goals — and impact investing. The proactive turn has been encouraged by growing investor sophistication, better coalition building, and the Pope, who encouraged Catholic organizations to embrace impact
investing in a 2014 speech.

“I think that was a turning point for several of the clients that we work with, where they started thinking in a more proactive framework,” Kristine Pelletier, a member of NEPC’s endowment and foundation practice, told Foundation and Endowment Report. “A lot of institutions felt that call to action, and maybe that put more fire into some initiatives that were already going on.”

Read the full story: Religious endowments move to the forefront of ethical investing

Published by Money Management Report/Pageant Media.

NYC pension funds seek advice on hiring a consultant for fossil fuel divestment

Three New York City pension funds, with $141.5bn in assets, have issued a request for information seeking advice on how to begin divestment from companies that own fossil fuel reserves.

The divestment plan, announced by the Mayor and Comptroller’s Office in January, would make the city pensions the first major U.S. pension plan to divest from fossil fuels (MMR, 1/10/2018). But not all of the pension plans are on board – the Police Pension Fund and the Fire Department Pension Fund, which control about $52bn in assets, or 27% of the city’s $193bn in pension assets, have declined to sign onto the divestment initiative.

But even without the support of the Police and Fire pension funds, the Teachers Retirement System, New York City Employees Retirement System and Board of Education Retirement System are moving ahead with a plan to divest from fossil fuel companies within five years.

Read the full story: NYC pension funds seek advice on hiring a consultant for fossil fuel divestment

Published by Money Management Report/Pageant Media.