Calpers Seeks Outside Help to Run $40 Billion Private Equity

(Bloomberg) -- The California Public Employees’ Retirement System, the largest U.S. pension fund, is formally soliciting a partner to help manage its $40 billion private equity portfolio.

The retirement system, which oversees more than $350 billion, sent requests for information in December to a group of asset managers seeking a “strategic partnership” for its private equity portfolio, according to a document released by Calpers. The partnership will work on opportunities for co-investments, funds, separate accounts and other vehicles.

“Calpers desires to create a collaborative partnership where the partner has investment discretion, but works with Calpers PE staff in the development of an annual allocation plan that Calpers will approve,” according to the solicitation request.

Possible partners include BlackRock Inc. and Neuberger Berman Group, among others, according to people familiar with the matter who asked to not be identified because the information is private. Spokesmen for both firms declined to comment.

Calpers plans to commit $7 billion to $10 billion a year in new capital to private equity, according to the solicitation. That follows comments by the system’s chief investment officer, Ted Eliopoulos, that he expects returns to decline amid expensive valuations and large pools of capital competing for deals. A record $453 billion was raised globally for private equity in 2017 and “dry powder,” or money awaiting commitment, exceeded $1 trillion at the end of December, Preqin Ltd. said in a report Thursday.

Calpers Seeks Outside Help to Run $40 Billion Private Equity

Joe DeAnda, a Calpers spokesman, declined to comment beyond an emailed statement saying, “This is part of our ongoing review of the private equity program, and we’ll spend a good part of 2018 continuing to explore strategic options.”

Calpers has been moving more of its investing capabilities, such as stock and bond management, in-house to reduce fees paid to outside firms. That’s harder to do with private equity because dealmaking expertise often commands compensation beyond what’s typically paid to internal managers at public pensions.

Under its current private equity program, Calpers has failed to meaningfully reduce fees or find co-investment opportunities to enhance its returns, according to a November report to the pension by consultant Meketa Investment Group.

The solicitation’s response deadline is Jan. 19. The Calpers investment committee will interview finalists in March and April with a decision on a partner to come later.

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