The California Public Employees’ Retirement System (CalPERS) is to reduce the number of private equity managers it uses by two-thirds.
New CIO Ted Eliopoulos told the Financial Times that he was continuing a wide-ranging overhaul of the $300 billion portfolio—which has already seen CalPERS begin to wind up a $4 billion allocation to hedge funds—with drastic changes to its private equity holdings.
“By having fewer managers, at larger scale, we will be able to reduce our overall costs.” —Ted Eliopoulos, CalPERSCalPERS had more than $43 billion invested in private equity at the end of 2013, according to its website.
Eliopoulos told the Financial Times he would use “every possible lever” to cut costs, and indicated that the number of managers CalPERS uses for private equity could fall below 100, from 291 currently. He voiced a desire to team up with other investors on big deals
“By having fewer managers, at larger scale, we will be able to reduce our overall costs,” Eliopoulos said.
However, there are no signs to indicate that CalPERS will reduce its overall exposure to the asset class, as it has with hedge funds. Eliopoulos said he wanted to “make sure we still have access to the talent that we need”, and the pension is currently advertising for a portfolio manager for its Sacramento, California-based private equity team.
The decision to create a more concentrated portfolio reflects a growing trend in the sector: Larger, established managers are finding it much easier to raise cash for new funds than newer players.
Recent research from Preqin showed that funds launched last year by managers new to the private equity sector accounted for 7% of the $486 billion raised in 2014, the same proportion as in 2013.
In contrast, established names dominated the list of the biggest funds closed last year. The largest single fund was Hellman & Friedman VIII, a buyout fund run the eponymously-named San Francisco, California-based firm. Blackstone, Bain Capital, and Permira all closed funds with more than $5 billion of investment capital raised.
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