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CalPERS Data Shows Private Equity Provides Strong Returns

According to CalPERS, PEARS is bearing fruit.

The California Public Employees’ Retirement System announced on Tuesday that funds in its private equity program have seen $24.2 billion in realized net gains in the 25 years from 1990 to June 30, 2015. These figures are based on data from CalPERS new Private Equity Accounting and Reporting Solution (PEARS).

Of note, over that same 25 years, PEARS data indicates that CalPERS’ external investment partners in the PE program have have made $3.4 billion from profit sharing agreements. This $3.4 billion figure is in effect what the PE managers CalPERS worked with were “paid” for their investing efforts.

CaLPERs-private-equity

Comments from CalPERS execs

“Private equity has the highest net returns in our portfolio,” noted 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.”

“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,” Réal Desrochers, Managing Investment Director for Private Equity, commented.  “Our returns and profit sharing numbers indicate that we are prudently selecting our investment partners, and that they are skilled at managing CalPERS’ investments.”

Private equity investment program produced 11.1% average annual return

Tuesday’s  statement noted that CalPERS’ private equity program was initially set up in 1990. According to data from the new PEARS system, CalPERS’ private equity earnings from active funds were based on $29.3 billion in original investments, and have led to the return of original investment plus realized a net gain of $24.2 billion, for a total of $53.5 billion.

The overall performance of the PE program has been strong across all time periods, especially when you take into consideration that CalPERS’ Total Fund target is 7.5%. The results below date from June 30th, 2015:

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

PEARS came about after a need to better track and report program expenses, carried interest, and other data in private equity was noted. This need resulted in the development of the PEARS system, a new database tool that will allow the pension fund to comprehensively report carried interest and other information from private equity investments. The PEARS system became operational in 2015 and new functionalities are constantly being added.

The statement noted that CalPERS has worked hard for years to improve transparency in its private equity investing. For example, the fund provides a list of commitments made in private equity each month, offers further performance details in quarterly and bi-annual reports, creates an annual program review for the CalPERS Board of Administration, and lists all management expenses for external PE partners in the annual financial report. In the future, the amount of profit shared with its external investment partners will also be included n the annual report.

The breakdown of the investments can be seen below.

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