Key Takeaways
- • CalPERS' co-investments underperformed fund investments in most periods over a 30-year span on a net basis, according to private equity head Anton Orlich, marking a significant historical performance drag for the US's largest public pension fund.
- • A 2022 strategic overhaul of CalPERS' private equity program has corrected this long-standing underperformance trend, with the portfolio delivering a preliminary net 17% return in the most recent measurement period.
- • Over a 10-year basis, CalPERS co-investments have now delivered a 15.4% return, outperforming the pension's traditional fund investments at 11.9%, demonstrating the turnaround strategy's effectiveness.
- • CalPERS increased its growth equity allocation to 31% in fiscal year ended June 2024, up from 9% previously, as part of the broader portfolio rebalancing that shifted the pension toward higher-growth segments of private equity.
- • Private equity remains CalPERS' highest-performing investment class over the past 20 years, with the program generating annualized returns of 6.83% over five years, 8.57% over 10 years, and 6.81% over 20 years on a preliminary basis.
Summary
CalPERS has successfully reversed a three-decade pattern of co-investment underperformance that had plagued the nation's largest public pension fund. According to Anton Orlich, CalPERS' private equity head, the fund experienced a prolonged period where co-investments underperformed traditional fund investments across most measurement periods, even on a net-of-fees basis. This structural underperformance represented a persistent drag on returns and signaled a need for strategic repositioning within the private equity portfolio.
The fund implemented a comprehensive overhaul of its private equity strategy in 2022 that has yielded measurable improvements in performance. The restructured portfolio delivered a preliminary net return of 17% in its most recent measurement period, extending gains initiated by the 2022 strategic shift. This turnaround demonstrates the effectiveness of CalPERS' rebalanced approach to private equity investing and marks a reversal from decades of underperformance in the co-investment segment.
On a 10-year basis, co-investments have now achieved a 15.4% annualized return, meaningfully outperforming CalPERS' traditional fund investments, which returned 11.9% over the same period. This performance improvement underscores the impact of the strategic recalibration. The overhaul included a significant reallocation toward growth equity, with CalPERS increasing its growth equity allocation to 31% in the fiscal year ended June 2024, compared to just 9% previously. This shift reflects a deliberate pivot toward higher-growth segments of the private equity market.
Private equity has solidified its position as CalPERS' highest-performing asset class over the past two decades. The program generated preliminary annualized returns of 6.83% over five years, 8.57% over 10 years, and 6.81% over 20 years. The long-term outperformance relative to public equities, combined with recent improvements in co-investment returns, positions the private equity program as a critical anchor for the pension fund's overall portfolio strategy and long-term return objectives.
The fund implemented a comprehensive overhaul of its private equity strategy in 2022 that has yielded measurable improvements in performance. The restructured portfolio delivered a preliminary net return of 17% in its most recent measurement period, extending gains initiated by the 2022 strategic shift. This turnaround demonstrates the effectiveness of CalPERS' rebalanced approach to private equity investing and marks a reversal from decades of underperformance in the co-investment segment.
On a 10-year basis, co-investments have now achieved a 15.4% annualized return, meaningfully outperforming CalPERS' traditional fund investments, which returned 11.9% over the same period. This performance improvement underscores the impact of the strategic recalibration. The overhaul included a significant reallocation toward growth equity, with CalPERS increasing its growth equity allocation to 31% in the fiscal year ended June 2024, compared to just 9% previously. This shift reflects a deliberate pivot toward higher-growth segments of the private equity market.
Private equity has solidified its position as CalPERS' highest-performing asset class over the past two decades. The program generated preliminary annualized returns of 6.83% over five years, 8.57% over 10 years, and 6.81% over 20 years. The long-term outperformance relative to public equities, combined with recent improvements in co-investment returns, positions the private equity program as a critical anchor for the pension fund's overall portfolio strategy and long-term return objectives.
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