CalPERS Chief Investment Officer (CIO) Ted Eliopoulos has raised the possibility of severely cutting the Sacramento-based pension fund’s $25.9 billion private equity portfolio. It will be done because of the issues of fee transparency raised by the general partners, which are now becoming a major controversy.
CalPERS looking at drastic cuts to private equity
Eliopoulos told that the system’s investment committee, which public comments at meetings and media stories are criticizing the private equity program and it’s a part of CalPERS being a public agency.
He said, ‘But the sustained and repetitive attention on our staff and our private equity investment strategy is taking a toll on both our staff and competitiveness in the marketplace’.
Retreat meeting
As the system will set its asset allocation for 2018 through 2021, Eliopoulos said that the issue will be discussed on July 17 at the $323.9 billion fund’s retreat meeting.
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He said, ‘If we are not successful in finding a better solution, the asset allocation process will need to weigh a much-reduced allocation to private equity than would have otherwise hoped for’.
National debate about private equity fees
In 2015, the California Public Employees’ Retirement System had gone through a national debate, which was about private equity fees. It was thrown into the national debate after disclosing of the fact that they couldn’t account for how much they paid to private equity general partners as performance fees. But, on the other hand, CalPERS officials have admitted they do not have a handle of all fees being charged.
Eliopoulos said that CalPERS has been a ‘leader’ when it comes to fee transparency. He further said that the other major pension funds, which also make large investments in the private equity haven’t seen the attacks that CalPERS has received.
A CalPERS insider said that ultimately it would be unlikely for CalPERS in order to make a major reduction in its private equity program. However, some smaller reductions may be inevitable.
Eliopoulos said that more and more institutional investors are competing for a limited number of top-grade private equity investment opportunities. He said, ‘It makes for a very challenging environment’.
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Date: June 21, 2017