Public criticism has been wage against CalPERS for its exposure to high fee volatile investments like private equity. The $324 billion California Public Employees Retirement System (CalPERS) follows a growing trend among pension systems. Many of them are seeking to obtain better returns than that which is traditionally offered from safer investment alternatives. Nevertheless, these returns are not guaranteed, and the pension is on the hook for any unexpected losses. In particular, CaLPERs private equity strategy has come under fire for the alleged high fees it costs.
CalPERS CIO, Ted Eliopoulos, stated that starting in July the pension fund will review its position in private equities. He went on to explain that there would be a review of their investment strategy regarding private equities and, if needed, reductions in these investment vehicles would take place. Currently, the pension has 8%, or almost $26 billion, of its fund in private equity, a decline from last year’s 10%.
Chilton Capital's REIT Composite was up 6.1% last month, compared to the MSCI U.S. REIT Index, which gained 4.4%. Year to date, Chilton is up 6.3% net and 6.5% gross, compared to the index's 8.8% return. The firm met virtually with almost 40 real estate investment trusts last month and released the highlights of those Read More
CalPERS, the largest public pension fund in the US, have been subject to public criticism because of its investment policies. Critics demanded that the public pension disclose the fees it paid to private equity investments. A report in April in Barron’s explained that nearly 85% of CaLPERs private equity investment retained a 2/20 free structure. This means that the fund pays a fee of 2% for the assets under management as well as 20% on investment earnings. Last year, a total of 14% in investment fees was paid to private equity investments by CalPERS.
Despite the high fees, CaLPERS justifies its investment policy through the returns obtain by its private equity exposure. Although a small portion of the fund, the private equity portion of the fund investments is the highest-returning asset class. Since the private equity program launched in 1990, it has contributed a total of $25 billion in profits to CalPERS. “Few investments are as essential to CalPERS’ success as private equity,” said Henry Jones, chairman of the CalPERS Investment Committee and vice president of the board.