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Calpers, the largest public pension plan in the United States, aims to increase its holdings in private markets by more than $30 billion and reduce its allocations to stock and bond markets in an effort to improve returns.
A proposal to increase the fund's $483 billion positions in assets such as private equity and private credit from 33 percent of the plan to 40 percent was approved Monday, according to a fund announcement and board meeting notes.
The formal approval comes two years after Calpers admitted that the decision to suspend its private equity program for 10 years cost it up to $18 billion in revenue.
However, a review of its investment policy found that despite the gains it had already missed, private equity was still the asset class with the highest expected long-term total return.
“The strong and continued growth in private equity returns is the reason for this thoughtful and appropriate increase,” said David Miller, Calpers Trustee and Chairman of the Investment Committee.
“Market conditions are evolving and the investment team needs the freedom to deploy capital intelligently to keep the fund on track to deliver sustainable returns.”
According to the analysis published by Calpers along with its board's observations, private equity was the best-performing asset class in the decade ending June 30, 2023, with annual returns of 11.8 per cent. This compares to 8.9 percent from public equities and 2.4 percent from fixed income. The documents did not reveal whether the numbers take fees into account.
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The portfolio restructuring, which was confirmed after a scheduled asset allocation review, will bring the California-based plan into line with other large US pension schemes, including Calstrus, which has just over 40 per cent of its portfolio in Private markets. .
As part of the move, Calpers will increase its bet on private equity from 13 per cent to 17 per cent of its portfolio, although this could rise to 22 per cent.
At the same time, it is pulling back from investing in stock markets, with its allocation to stocks expected to fall from 42 percent to 37 percent of its investment portfolio. It will also reduce its allocation to fixed income from 30 percent to 28 percent.
In 2021, Calpers' board approved an expansion into private assets including private equity, real assets and private debt, from 21 percent to 33 percent of the portfolio, giving itself the ability to borrow money to invest in assets that would help with diversification. . Her holdings.
Last year, the Financial Times reported that Calpers was planning a multibillion-dollar move into international venture capital, as the fund moved toward investing in riskier assets to boost returns.
The fund also reported a 10.3 percent return last year. It has not yet announced a replacement for chief investment officer Nicole Musico, who resigned last year after 18 months in the role.
