The California Public Employees' Retirement System (CalPERS), a prominent public pension fund in the United States, is undergoing a significant strategic reallocation of its private equity portfolio. This shift involves channeling more capital into burgeoning and early-stage enterprises while simultaneously reducing its emphasis on traditional buyout funds. This strategic adjustment is designed to boost overall returns and diversify its investment landscape.
CalPERS Pioneers New Investment Horizon: Greater Focus on Innovation, Reduced Buyout Exposure
A New Investment Approach: Prioritizing Growth and Early-Stage Ventures
CalPERS, America's largest public pension fund with an impressive asset base exceeding $500 billion, is spearheading a strategic transformation within its private equity holdings. The fund has substantially amplified its investment in growth equity, marking a 31% increase in the fiscal year ending June 2024. This notable expansion highlights a clear pivot from a mere 9% allocation two years prior, underscoring a deliberate move towards more dynamic and rapidly expanding market segments.
Diversifying for Enhanced Returns: The Strategic Shift from Buyouts
Echoing the fund's forward-thinking stance, Anton Orlich, CalPERS' managing investment director of private equity, emphasized the inherent advantages of this revised strategy. He pointed out that ventures focused on growth and early-stage development not only tend to yield superior returns but also offer crucial diversification benefits beyond traditional buyout investments. This perspective has led CalPERS to establish a dedicated venture capital initiative, which already accounts for 12% of the fund's total commitments in 2024.
Rebalancing the Portfolio: Decreased Reliance on Buyout Funds
In alignment with its revamped strategy, CalPERS has significantly scaled back its allocations to buyout funds. Data presented to the board reveals a reduction from 91% in the fiscal year 2020-21 to a more modest 58% by fiscal year 2023-24. Despite this reduction in specific categories, the overall private equity allocation of the pension fund has seen an increase, moving from 13% to 17% of its total portfolio, signifying a robust commitment to this asset class with a refined approach.
Optimizing Performance: The Impact of Strategic Reallocation
The strategic adjustments are already yielding positive outcomes. The CalPERS private equity portfolio, valued at $98 billion, has recorded impressive returns: 14.3% over one year and 7.4% over three years leading up to June 2025. These figures position CalPERS as a top performer among the 30 largest U.S. public pensions. The report anticipates continued improvement in returns and an increased share of invested capital if this successful model persists.
Key Factors Driving Success: ESG, Cost Efficiency, and Visionary Leadership
The resurgence in CalPERS' private equity performance is attributed to several critical factors. These include the robust integration of ESG (Environmental, Social, and Governance) principles, which infuse expanded governance and sustainability considerations into their due diligence processes. Additionally, the fund has either scaled back or terminated commitments that did not align with its human capital values. A focus on lower cost structures, such as co-investments and separately managed accounts, has also played a crucial role in boosting net returns. Tom Toth of Wilshire Advisors further reinforced this, highlighting the positive momentum and recognizing private equity as a significant contributor to the total fund’s returns.
