CalPERS Puts Private Equity Benchmarks Under Review


CalPERS’ private equity portfolio underperformed its benchmark by 3.3 percent last fiscal year – but that’s only one of the reasons that the country’s largest public pension fund is putting its private equity benchmarks under review.

Reported by Pensions & Investments:

CalPERS’ $31 billion private equity portfolio has underperformed its policy benchmark over both long- and short-term periods, shows a review of the program, but pension fund officials feel part of the problem is that the benchmark seeks too aggressive a return and are seeking revisions.

The private equity staff review, to be presented to the investment committee Dec. 15, shows that as of June 30 the private equity portfolio produced an annualized 10-year return of 13.3%, compared to its custom policy benchmark of 15.4% annualized.

Over the shorter one-year period, CalPERS’ portfolio returned 20%, compared to the benchmark’s 23.3%; over three years, it returned 12.8% annualized compared to the benchmark’s 14.5%; and over five years, it returned 18.7% compared to the benchmark’s 23.2%.

But the report says the benchmark — which is made up of the market returns of two-thirds of the FTSE U.S. Total Market index, one-third of the FTSE All World ex-U.S. Total Market index, plus 300 basis points — “creates unintended active risk for the program, as well as for the total fund.”

California Public Employees’ Retirement System investment officials have said publicly at investment committee meetings that they feel the private equity benchmark they are shooting to outperform is too aggressive.

CalPERS manages $295 billion in assets, of which $31 billion is private equity.


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