CalPERS Board Discusses PE Benchmark

The CalPERS board on Monday discussed the fund’s private equity benchmark and whether it should be scrapped.

The pension fund faces an interesting conundrum: its private equity portfolio has fallen short of benchmarks over the last three, five and 10-year periods.

But private equity also has the highest net returns of any asset class in CalPERS’ portfolio (see return data below), according to CIO Ted Eliopoulos.

More from the LA Times:

The California Public Employees’ Retirement System has proposed stripping its policy of [the private equity] return objective – which had been defined as earning 3% more than the broader stock market to compensate for the risk of investing in the private firms.

Instead, CalPERS’ new goal for its private equity investments would not be to meet a specific benchmark, but to “enhance” overall returns, according to a proposed revision. The change is scheduled to be discussed at a Monday meeting.

Critics say the seemingly minor word change would clear the way for CalPERS to invest in the complex Wall Street sector – the buying and selling of whole companies – without requiring it to meet higher return goals to compensate for the extra risk.

“This is outrageous,” said Eileen Appelbaum, a senior economist at the Center for Economic Policy and Research, a Washington, D.C., think tank. “CalPERS can’t get over the goal, now plans to do away with goal post.”

But Joe DeAnda, a CalPERS spokesman, said the critics are wrong. The change to the policy’s “Strategic Objective” section, he said, has nothing to do with the benchmarks, which remain in place.

In an email, DeAnda explained that the fund’s staff was working only “to remove vague, ‘untestable’ language from all our investment policies.”

Here is how CalPERS’ private equity program has performed over various time horizons:

• 3-year: 14.1%
• 5-year: 14.4%
• 10-year: 11.9%
• 20-year: 12.3%
• Since Inception: 11.1%

Photo by  rocor via Flickr CC License