With the California Public Employees’ Retirement System (CalPERS) confirming plans to reduce the number of private equity managers it partners with, Preqin looks at the wider trends of US-based public pension funds’ exposure, activity and concerns in the private equity asset class.

CalPERS to Cut Back on the Number of Private Equity Managers – Sign of a Wider Trend?

Just a few months after the announcement that CalPERS was to drop hedge funds from its alternatives investment portfolio, it has been reported that the US pension fund is looking to further reduce the number of private equity GP relationships it holds, by up to two-thirds. This is a continuation of CalPERS’ ongoing efforts to reduce overall costs, reigniting the long-running industry debate over management and performances fees payable by LPs. Preqin’s biannual surveys of investors around the world have consistently confirmed that fees have been perceived by LPs as a key issue affecting the private equity industry.

CalPERS

It is important to note that CalPERS, the largest public pension fund in the world and the most prominent institutional investor in private equity in absolute dollar terms, still has a target allocation of 10% to the asset class. Though a recent decline in average current allocations of US public pension funds has been evident, this trend is reflective of recent high distribution levels helping to lift assets under management and therefore reducing LP exposure.

CalPERS

Preqin’s data confirms that appetite for private equity investments from US-based public pension funds remains substantial, with more of these LPs active in the asset class as of January 2015 than ever before. The decision by CalPERS may not immediately result in a drop in overall commitments to private equity funds, but serves as an effective statement to fund managers on the importance of justifying fund terms, as well as the power of the limited partner.

CalPERS