CalPERS to cut stake in stocks

Hoping to recoup steep investment losses, the California Public Employees’ Retirement System plans to rejigger its portfolio to pull back from the stock market while boosting its stake in private equity deals.

With the shift, CalPERS will be locking up more money in investments that often take many years to pay off.

In the wake of financial markets’ meltdown, a new asset allocation plan approved by the Sacramento-based pension fund’s board Monday reduces the proportion of publicly traded foreign and domestic stocks in the $184-billion portfolio to a target of 49% of total assets, from the previous target of 56%.

At the same time, the target for private equity investments jumps to 14% of assets from 10%.


Private equity deals include stakes that CalPERS takes in private companies, such as via venture capital investments or by helping to fund leveraged buyouts. The goal is to eventually sell the stakes at a fat profit.

CalPERS invests with many of the titans of the private equity business, including Apollo Management; Kohlberg, Kravis Roberts & Co.; and Carlyle Group. The fund’s close ties to Apollo have raised some eyebrows on Wall Street.

Among other changes in the portfolio, CalPERS’ target for cash reserves rises to 2% from zero, while the allocation for fixed income instruments, such as corporate bonds, floats up 1 percentage point to 20%.

Investments in real estate remain unchanged at 10%, and commodities hold steady at 5%.

Private equity offers “a chance to add some value over public equities,” said Andrew Junkin, a principal at Los Angeles-based Wilshire Consulting, which provides investment advice and analysis to CalPERS.

Although many big pension funds suffered losses on private equity deals in the late 1990s, such investments have performed better over time than pension portfolios as a whole, said Stephen Nesbitt, chief executive at Cliffwater LLC, a Los Angeles consulting firm that also does business with CalPERS.

“It’s generally true that after a recession, it’s a good time to be investing in private markets,” Nesbitt said. “They tend to be the most depressed and tend to be the best bargains.”

CalPERS’ private equity holdings lost 7.4% in the first quarter of this year and 19% in the 12 months ended March 31, according to a Wilshire report. By contrast, the fund’s public stock portfolio lost 9.9% in the quarter and 40.9% in the 12 months.


CalPERS’ private equity portfolio has trounced its publicly traded stock investments over the last 10 years, the fund says. Private equity deals generated an average annual return of 8.8% over the last decade, compared with an average annual loss of 0.9% for publicly traded stocks.