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California’s leading public pension funds see strong returns from private equity

by Emma Dineen

  • 25 Jan 2011
  • PE

The USD 228.5 billion California Public Employees’ Retirement System (CalPERS) and USD 140 billion California State Teachers’ Retirement System (CalSTRS) have both seen private equity among their top performers in their investment portfolios over the 2010 calendar year.

CalPERS earned a net return on its investment portfolio of 12.5%, seeing double-digit gains for the second consecutive year. Its private equity program, the Alternative Investment Management (AIM) Program, saw the strongest overall returns within CalPERS’s overall investment portfolio, of 21.5%, exceeding its benchmark by more than seven percentage points.

CalPERS currently has 14% of assets allocated to private equity, amounting to USD 32 billion, and is at its target. The pension fund adopted a new asset allocation strategy in December following an almost year-long review of its portfolio. The new strategy looks to reposition its investment categories for a better risk-adjusted performance. The new allocation plan, which divides CalPERS’s investments into five major groups based on how they function in high or low-growth markets, puts private equity in a ‘growth’ category alongside public equity. The growth category has a target allocation of 63% of CalPERS’s overall market value. The four other main investment groups are: liquidity, including cash and government bonds; income, such as TIPS and other fixed income securities; real, including real estate, infrastructure and forestland; and inflation such as commodities and inflation linked bonds.

CalSTRS has also seen encouraging results from its investments over 2010, seeing an overall return on its investment portfolio of 12.7%. Private equity was the second highest performer, seeing an overall return of 16.9%, just behind the 17.2% return achieved by the US equities portfolio. CalSTRS has a 12% target allocation to private equity, with 14% currently allocated to the asset class.
Both CalPERS and CalSTRS invest globally in the asset class in a broad range of fund types.

Further information on private equity investors can be found on Preqin’s Investor Intelligence database.

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