CalPERS paid highest carry amounts to Advent, CVC, TPG

The largest US public pension fund paid $539m in profit sharing to private equity fund managers as it attempts to cull its number of external relationships.

Advent International, CVC Capital Partners and TPG Capital were among the highest earners of carried interest from California Public Employees’ Retirement System (CalPERS) in the last fiscal year as the US’s largest public pension system attempts to cull the number of private equity managers it has relationships with.

CalPERS awarded $35.7 million in carried interest to Advent International Global Private Equity (GPE) VI-A, $33.1 million to CVC European Equity Partners Tandem Fund (B) and $32.1 million to TPG Partners VI.

According to the CalPERS private equity performance review tool on its website, Advent GPE VI-A was generating a net internal rate of return of 18.4 percent, CVC European Equity Tandem (B) 6.7 percent and TPG Partners VI 10.9 percent, as of 31 March.

Overall, CalPERS paid $539 million in profit sharing to its private equity fund managers in the fiscal year ended 30 June. In that year, 118 of the 408 private equity funds CalPERS had commitments with disclosed their carry, according to one of the pension fund’s investment committee meeting materials for 14 November.

Nearly $50 million of the carry went to the underlying funds in unspecified funds of funds in Sacramento-based CalPERS’ private equity programme.

CalPERS has been using the secondaries market to sell fund stakes and reduce the number of external managers with which it has relationships. The pension recently sold its stake in a €500 million separately managed account to Partners Group and SL Capital Partners, as Secondaries Investor reported.

An August report by Pension Consulting Alliance on CalPERS’ first half 2016 private equity programme performance notes the pension reduced ties with 24 managers during the fiscal year.

The meeting materials also indicated that the average capital-weighted carried interest for the fiscal year was 14.55 percent.
During this fiscal year, the pension giant committed about $4 billion to private equity, and has the same budget for the asset class for the fiscal year 2016-2017, the annual review said.

Last year, CalPERS came under fire for failing to track carried interest data, and published its first report in November 2015 that indicated it had paid $3.4 billion in profit sharing to its private equity managers since inception, as reported by Private Equity International.

During this same period, CalPERS paid $252.2 million in net management fees to the 186 external fund managers that have disclosed this information. The pension plan also paid $9.3 million to internal management, $1.3 million in consultant fees and $11.3 million in technology and operating expenses, according to its Private Equity Annual Program Review report.

CalPERS also noted that it realised $3.26 billion in gains from its overall private equity portfolio.

At the end of the 2015-2016 fiscal year, the pension’s private equity portfolio had a net asset value of $26.4 billion. Most of that amount – 67 percent – was through funds. This was slightly lower than the 80 percent in 2012. By contrast, the portion of separate accounts within private equity investments jumped from 3 percent to 11 percent between 2012 and 2016, the report showed.

Buyout remained the most popular strategy for CalPERS’ private equity portfolio, accounting for 57 percent of the total programme. In terms of sectors, consumer-related strategy took the largest slice of the pie, at 23 percent, followed by financials at 17 percent.

As of 30 June, the pension’s private equity portfolio outperformed its benchmark for the one- and 20-year periods, and underperformed for the three-, five- and 10-year periods.

The $26.4 billion in CalPERS’ private equity portfolio represented 8.9 percent of its total investment portfolio across all asset classes, slightly below its 10 percent target allocation. As of 30 June, CalPERS’ total investment portfolio stood at $295.2 billion.

A TPG spokesman declined to comment. CVC and Advent were not available to comment.

A CalPERS spokeswoman said the pension fund is still actively looking to cut relationships with some of its external fund managers and declined to comment past the documents.