The California Public Employees’ Retirement System (CalPERS) made more than $1.35 billion in new commitments in private equity funds in the last three months of 2018, investment committee reports show.
The new commitments are part of CalPERS’s efforts to replace liquidating funds and maintain the size of its traditional private equity program. The program has been shrinking due to increased competition from other institutional investors to invest in comingled private equity funds. The private equity program makes up only 8.3% of CalPERS’s $337.2 billion portfolio, down from almost 10% four years ago. Private equity is CalPERS’s best-returning asset class long and short term.
As the new commitments continue for the $27.8 billion traditional private equity program, which mostly consists of buyout funds, CalPERS Chief Investment Officer Ben Meng is also scheduled to offer new details of the pension system’s plan to increase private equity through a new investment initiative.
Meng is scheduled to discuss at the system’s Feb. 19 investment committee meeting additional details about Innovation and Horizon, the system’s two planned direct-investment-style private equity vehicles.
Innovation would invest up to $10 billion in late-stage venture capital investments and Horizon would invest up to another $10 billion in buy-and-hold stakes in established companies.
Investment committee members are expected to be asked to approve the program as soon as March. The planned and existing private equity programs are expected to complement each other and allow the pension system to expand its alternative asset program.
CalPERS documents for the system’s Feb. 19 meeting detail the biggest commitment made by the pension system was a $400 million allocation to Grandval II, a separate account managed by Insight Venture Partners. The firm specializes in growth equity and venture capital investments.
CalPERS had previously committed $300 million to Insight Venture Partners Fund X, a private equity fund specializing in growth equity investments in the technology arena. CalPERS made its commitment in November 2017. The $6.3 billion fund closed in July 2018.
The next biggest commitment was a $380 million commitment to PAG Asia III, a buyout fund managed by Asian alternative money management firm PAG. The $6 billion buyout fund closed in February 2019. CalPERS made its commitment in November 2018.
Also in November, CalPERS made a $300 million commitment to private equity firm KKR’s European Fund V. The fund will invest in portfolio companies across Europe.
In October 2018, the retirement system made a €250.00 million ($281.41 million) commitment to European private equity firm Tritan’s Fund V. The buyout fund had a hard cap of €5 billion ($5.63 billion).
All the commitments were made by CalPERS investment staff using its delegated investment authority, which allows investment approvals to bypass the CalPERS investment committee.