CalPERS’ Active Private Equity Funds Generated $24.2 Billion in Net Gains for the Fund; Releases Profit Shared with Investment Partners

Data from new private equity accounting tool shows strength of high-return investment program

The California Public Employees’ Retirement System (CalPERS) today announced that active funds in its private equity program have added $24.2 billion in realized net gains to the Fund from 1990 to June 30, 2015, based on data from its newly operational Private Equity Accounting and Reporting Solution (PEARS). During that same time period, PEARS data shows that CalPERS’ external investment partners have realized $3.4 billion from profit sharing agreements with CalPERS.

Over the 2014-15 Fiscal Year alone, CalPERS realized $4.1 billion in private equity net gains while its external investment partners realized $700 million from profit sharing agreements, according to PEARS data.

"The launch of the PEARS system and release of these numbers is a significant step for CalPERS," said Henry Jones, CalPERS Board Vice President and Investment Committee Chair. "Private equity is a complicated asset class and the Board and investment office staff will now have even more insight into our program."

"Private equity has the highest net returns in our portfolio," said Ted Eliopoulos, CalPERS Chief Investment Officer. "As a long-term investor, it is an important piece of our investment strategy and our mission to provide pension benefits for generations to come. I commend our private equity team for their leadership of the program, and their help with the successful development and implementation of the PEARS system, which will allow us to more meaningfully examine information received from our external investment partners and has already increased the transparency of our program."

CalPERS’ private equity program was established in 1990. Data from PEARS shows CalPERS’ private equity earnings from active funds were based on $29.3 billion in original investments, with total realized proceeds - return of original investment plus realized net gain - totaling $53.5 billion. The program’s absolute performance - including active and inactive funds - has been strong in all reported time periods, given CalPERS’ Total Fund target of 7.5 percent, as follows, as of June 30, 2015:

• 3-year: 14.1%
• 5-year: 14.4%
• 10-year: 11.9%
• 20-year: 12.3%
• Since Inception: 11.1%

"Having the PEARS system is an important step for CalPERS and will allow us to more fully examine our private equity program’s performance and costs going forward," said Réal Desrochers, Managing Investment Director for Private Equity. "Our returns and profit sharing numbers indicate that we are prudently selecting our investment partners, and that they are skilled at managing CalPERS’ investments."

CalPERS staff identified a need to better track and report program expenses, carried interest, and other portfolio and fund level data in private equity in 2011. This led to the creation of the PEARS system, a proprietary tool that will allow CalPERS to comprehensively report carried interest and other information from private equity investments. The PEARS system became operational earlier this year and continues to add functionality.

CalPERS has a long history of focusing on transparency in its private equity investing. The Fund provides a list of commitments made in private equity each month, details performance in quarterly and bi-annual reports, provides an annual comprehensive program review to the CalPERS Board of Administration, and lists all management expenses for external partners managing its money in the System’s annual financial report. Going forward, it will also report annually on the amount of profit shared with its external investment partners.

CalPERS has also been a leader in calling for additional transparency and disclosure by the private equity industry. It helped found the Institutional Limited Partners Association, an organization dedicated to advancing the interests of private equity limited partners, and frequently advocates to federal regulators, and state and federal leaders, in favor of improved transparency, standardized reporting and greater fairness within the private equity industry.