CalPERS board approves 14% PE allocation(3)

The $183bn public pension said the move is designed to bring flexibility and higher liquidity to the portfolio.

The board of the California Public Employees’ Retirement System today approved a recommended boost in its target allocation to private equity to 14 percent from 10 percent, a significant increase that underlines the severe cash crunch faced by many backers of private equity funds.

The $183 billion public pension fund, among the largest in the world and a major player in private equity, announced that the move was designed to address the “misalignment of the portfolio in the wake of the financial market crisis of 2008”.

“This is not intended to be a long-range strategy but reflects our preference for higher liquidity and moderate risk, as well as the flexibility to respond to challenges and opportunities in the markets,” said George Diehr, chair of the CalPERS investment committee, in the statement. “Our investment officers will follow these guidelines as we position ourselves for short-term investment opportunities over the next year or so.”

The pension also lowered its exposure to global equity to 49 percent from 56 percent and raised its cash target to 2 percent from 0 percent. Real estate and “inflation-lined assets”, including infrastructure, remain unchanged.

The downturn in asset values has impacted the private equity allocation in many institutional portfolios, pushing private equity allocation targets well beyond their limits. Like CalPERS, many institutions have sought to boost these allocation targets so as not to be in breach of previously set ranges, or be forced to sell into what is widely viewed as a secondaries market with a very wide bid-ask spread.