CSUN University News Clippings

CalPERS may increase its private equity holdings

(June 10, 2009)

By Dale Kasler

Searching for bargains in a down market, CalPERS is set to plunge more deeply into the world of private equity.

The pension fund’s board is poised to vote next week to increase private equity investments by up to 40 percent. The move would raise private equity’s share of the portfolio to 14 percent, up from the current target of 10 percent.

The staff of the California Employees’ Retirement System also recommended shifting dollars away from the stock market. Stocks would shrink to 49 percent of CalPERS’ portfolio, from the current 56 percent, under the staff’s recommendation.

“The opportunities are strongest in private equity,” said CalPERS spokesman Clark McKinley. “This is where you have cutting-edge companies.”

Private equity refers to investments in companies that aren’t publicly traded.

CalPERS’ existing private-equity investments have struggled mightily recently, losing 15.7 percent of their value in the three months ending April 30. CalPERS’ overall portfolio gained just under 1 percent during that period.

But private equity has been CalPERS’ second-best performer the past five years, after real estate, and “there’s some very good deals to be had out there,” McKinley said.

The move is sure to be closely watched because of CalPERS’ size and influence. With assets totaling $182.1 billion, CalPERS is the largest public pension fund in America.

The staff also recommended increasing cash holdings to 2 percent, from the current zero, to become more “opportunistic,” McKinley said.

The staff’s recommendations followed a one-day workshop in May on CalPERS’ investment strategies, which came on the heels of months of big losses. CalPERS’ portfolio has shrunk nearly 24 percent since the fiscal year began July 1.

The workshop was a kind of midterm revision sought by Joseph Dear, who became CalPERS’ chief investment officer earlier this year. Normally, investment strategies are reviewed every three years, with the next one set for late 2010.

The allocations are targets, and the actual division of the portfolio fluctuates with the markets. Private equity already constitutes 11.7 percent of CalPERS’ portfolio, in excess of the 10 percent target. That’s because of the total portfolio’s losses since July.

Publication: Sacramento Bee