CalPERS “Direct” Isn’t So Direct

The California Public Employees Retirement System (CalPERS) is considering launching two new investment partnerships that would manage more than $20 billion over the next ten years. But that plan has encountered fierce opposition from inside CalPERS.

The opposition to the plan has centered over the lack of control CalPERS will have over the investments that will be made by the partnerships. It was also not clear what were the benefits to be gained by giving up that control to the partnerships, said CalPERS investment Committee Member Margaret Brown.

Randy Diamond filed this report in Chief Investment Officer:

CalPERS plans to allocate $20 billion to two partnerships, one that would invest in later-stage companies in the venture capital cycle in technology, life sciences, and healthcare. The second would buy stakes in established companies like Warren Buffet and hold those stakes for extended periods of time.

(Former CalPERS CIO Ted) Eliopoulos told the investment committee at its Nov. 13 meeting that the pension plan’s investment staff had looked at CalPERS running the program itself or owning it directly as a captive company but what “we really settled on is the traditional partnership structure where you have a general partner and a limited partner.”

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Critics of the plan say it is misleading to call the program “CalPERS Direct,” since the pension system will not make direct investments in private equity, like some of the Canadian pension plans.

“What they are proposing makes no sense,” said J.J. Jelincic, a former CalPERS Investment Committee member as well as a former CalPERS investment officer. Jelincic said Eliopoulos and other CalPERS investment officials haven’t detailed a logical rationale as to why they are giving up control of investment decisions or showed that they will be saving on the high fees that are part of CalPERS’s traditional private equity program.