Key Takeaways
- • CalPERS, the U.S.'s largest public pension with approximately $600–$613 billion in assets, has corrected a three-decade pattern in which co-investments systematically underperformed pooled funds on a net-of-fees basis, according to private equity head Anton Orlich.
- • The pension plan's strategic overhaul—featuring increased allocations to venture capital and growth investments alongside improved co-investment discipline—has generated near-term performance improvements and outperformance relative to peers.
- • The historical underperformance of CalPERS' co-investments represents a structural challenge that plagued the institution across most measurement periods over 30 years, suggesting systemic issues in deal selection, timing, or fee structures rather than isolated underperforming vintages.
- • CalPERS' private equity strategy revision addresses both portfolio composition and co-investment execution, positioning the pension plan to meet its fiduciary obligations while protecting member benefits through enhanced diversification and venture exposure.
Summary
CalPERS, managing approximately $600–$613 billion in assets, has successfully reversed a long-standing and persistent performance deficit in its co-investment strategy. According to Anton Orlich, the pension plan's private equity head, the institution faced a 30-year pattern where co-investments underperformed pooled private equity funds in the majority of measurement periods, even when calculated on a net-of-fees basis. This structural underperformance represents a significant drag on returns that compounded across decades of capital deployment.
The reversal of this trend coincides with a broader strategic overhaul of CalPERS' private equity platform. The pension plan has increased its emphasis on venture capital and growth-stage investments while simultaneously refining its co-investment approach. These changes have resulted in measurable near-term performance improvements, with CalPERS demonstrating outperformance relative to peer institutions. The revised strategy reflects a recognition that traditional co-investment exposure—historically a value-add proposition at large institutional investors—had become a liability in CalPERS' portfolio construction.
The historical underperformance backdrop is particularly significant given that CalPERS' broader private equity program has historically delivered outperformance relative to public equity markets over the long term, meeting the pension plan's primary investment objectives. The co-investment underperformance thus represented an internal inconsistency: while the overall private equity allocation worked, the direct investment component systematically lagged. The strategic recalibration addresses this gap through improved deal sourcing discipline, enhanced venture exposure, and better capital allocation decisions across direct investment opportunities.
For institutional investors and pension plans of comparable scale, CalPERS' experience underscores the importance of rigorous performance attribution and the willingness to restructure underperforming strategies regardless of institutional legacy or historical positioning. The California system's approach to diagnosing and correcting the co-investment shortfall—rather than accepting generational underperformance—demonstrates fiduciary rigor essential to protecting member benefits and maximizing risk-adjusted returns.
The reversal of this trend coincides with a broader strategic overhaul of CalPERS' private equity platform. The pension plan has increased its emphasis on venture capital and growth-stage investments while simultaneously refining its co-investment approach. These changes have resulted in measurable near-term performance improvements, with CalPERS demonstrating outperformance relative to peer institutions. The revised strategy reflects a recognition that traditional co-investment exposure—historically a value-add proposition at large institutional investors—had become a liability in CalPERS' portfolio construction.
The historical underperformance backdrop is particularly significant given that CalPERS' broader private equity program has historically delivered outperformance relative to public equity markets over the long term, meeting the pension plan's primary investment objectives. The co-investment underperformance thus represented an internal inconsistency: while the overall private equity allocation worked, the direct investment component systematically lagged. The strategic recalibration addresses this gap through improved deal sourcing discipline, enhanced venture exposure, and better capital allocation decisions across direct investment opportunities.
For institutional investors and pension plans of comparable scale, CalPERS' experience underscores the importance of rigorous performance attribution and the willingness to restructure underperforming strategies regardless of institutional legacy or historical positioning. The California system's approach to diagnosing and correcting the co-investment shortfall—rather than accepting generational underperformance—demonstrates fiduciary rigor essential to protecting member benefits and maximizing risk-adjusted returns.
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