CalPERS changes secondaries guidelines

The $288bn pension system expects to modify its private equity plan, as part of a continuous effort to restructure its portfolio and reduce the number of manager relationships.

The California Public Employees’ Retirement System plans to change its guidelines related to purchases made on the private equity secondaries market at its 16 June investment committee meeting, according to agenda documents.

In its private equity plan, CalPERS is not allowed to commit to a fund if the commitment exceeds 25 percent of the total fund. The limit applies to ‘top-quartile’ funds, ‘second-quartile’ funds and ‘emerging management teams’. The private equity plan does not limit the percent of a fund CalPERS can own after a secondary purchase; however the investment committee plans to modify the plan by adding language to make that clear.

CalPERS recognises most secondary purchases involve mature funds that are no longer considered “blind pools”, so the concentration limit is unnecessary, according to the documents.

During the meeting, CalPERS will also discuss increasing the maximum amount it can commit to a ‘second-quartile’ fund from 0.75 percent to 2 percent of the total private equity fund, with approval from the senior investment officer of private equity, and from 1.5 percent to 3 percent with approval from the chief investment officer. The pension also plans to increase the maximum exposure to a general partner from 10 percent to 15 percent.

CalPERS began restructuring its private equity portfolio in 2011 in an effort to reduce the number of manager relationships and to increase its exposure to single firms.

CalPERS also wants to be a buyer in the secondary market, senior investment officer of private equity Réal Desrochers told Secondaries Investor in February. The pension system is looking for funds raised in 2007, 2008 and 2009 because they have five-year investment periods and because CalPERS “practically disappeared” from the market between 2009 and 2011, so there is a hole in its portfolio during those years, Desrochers said.

In February, CalPERS was actively looking at three potential secondaries transactions. But the pension hadn’t purchased anything yet because the market is expensive.

“There’s so much money that’s been raised or being raised for secondary interests that it’s really a seller’s market. There’s not a single week that goes by that people don’t call trying to buy something from us,” Desrochers previously said.

CalPERS has a current private equity allocation of 10.8 percent and a target allocation of 14 percent. The system has $288 billion of assets as of 31 March 2014.