Key Takeaways
- • CalPERS, the largest US public pension with $613 billion in assets, has reversed a three-decade trend of co-investment underperformance relative to fund performance, according to private equity head Anton Orlich, marking a significant achievement for the pension's investment strategy.
- • The pension achieved a 40% co-investment ratio target in the 2023 and 2024 vintage years following a strategic overhaul emphasizing venture and growth investments, resulting in near-term performance gains.
- • CalPERS' revamped private equity program delivered an investment return of 14.8% for the recent fiscal year, substantially driven by robust returns on equities and private market assets, demonstrating the effectiveness of the strategic reset.
- • The pension's broader public and private equity program overhaul has positioned both asset classes to capture enhanced diversification and improved co-investment quality, marking a departure from the historical underperformance that characterized co-investments over most periods on a net basis.
Summary
CalPERS, the nation's largest public pension fund with $613 billion under management, has successfully corrected a persistent underperformance issue that plagued its private equity co-investment strategy for three decades. According to Anton Orlich, the pension's private equity head, co-investments historically underperformed fund investments in most periods, even on a net-of-fees basis—a structural challenge that the institution has now begun to overcome through a comprehensive strategic overhaul.
The turnaround centers on a deliberate shift in portfolio construction and allocation methodology. In 2022, CalPERS established a target of achieving 40% co-investment ratio in vintage years 2023 and 2024—a goal the fund has successfully achieved. This heavier emphasis on venture and growth investments, combined with improved diversification protocols, has generated measurable near-term performance improvements. The strategic recalibration reflects a long-term investing orientation, with CalPERS management committing to maintaining this course despite market volatility.
The financial results validate this approach. CalPERS reported an investment return of 14.8% for the past fiscal year, with substantial contributions from both equity and private market performance. The private equity program has emerged as one of the pension's highest-performing asset classes, benefiting from the combined effects of superior venture returns, enhanced co-investment selection, and the broader reset of its public and private equity programs.
This performance reversal carries implications for institutional investors evaluating co-investment opportunities and portfolio construction within private equity allocations. CalPERS' experience demonstrates that legacy underperformance in co-investments can be systematically addressed through disciplined strategy refinement, careful vintage year management, and a focused emphasis on higher-growth segments of the market.
The turnaround centers on a deliberate shift in portfolio construction and allocation methodology. In 2022, CalPERS established a target of achieving 40% co-investment ratio in vintage years 2023 and 2024—a goal the fund has successfully achieved. This heavier emphasis on venture and growth investments, combined with improved diversification protocols, has generated measurable near-term performance improvements. The strategic recalibration reflects a long-term investing orientation, with CalPERS management committing to maintaining this course despite market volatility.
The financial results validate this approach. CalPERS reported an investment return of 14.8% for the past fiscal year, with substantial contributions from both equity and private market performance. The private equity program has emerged as one of the pension's highest-performing asset classes, benefiting from the combined effects of superior venture returns, enhanced co-investment selection, and the broader reset of its public and private equity programs.
This performance reversal carries implications for institutional investors evaluating co-investment opportunities and portfolio construction within private equity allocations. CalPERS' experience demonstrates that legacy underperformance in co-investments can be systematically addressed through disciplined strategy refinement, careful vintage year management, and a focused emphasis on higher-growth segments of the market.
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