CalPERS, the largest public pension plan in the US, is set to deepen its exposure to private equity following its best annual performance since 2019, underscoring growing institutional conviction in the asset class despite ongoing valuation and liquidity concerns, according to a report by the Financial Times.
Stephen Gilmore, Chief Investment Officer at the California Public Employees’ Retirement System, said it was reasonable to expect our private equity exposure will continue to increase somewhat, adding that the fund’s scale and long-term horizon make it a preferred partner for top-tier managers.
CalPERS reported an 11.6% return for the fiscal year ended June 30, bringing total assets under management to $556.2bn and improving its funding ratio from 75% to 79%. The private equity portfolio delivered a 14.3% return, outperforming the prior year’s 10.9% and rebounding from a loss in the year before.
Private equity now accounts for nearly 18% of the portfolio, above the fund’s 17% target allocation set in March 2023. That marks a significant pivot from the 13% target previously in place, even as some peers – including the Texas Teachers Retirement System – have recently reduced exposure to the asset class.
Despite broader market challenges, including declining distributions and questions over private valuations, CalPERS has continued to commit capital, while sharpening its private equity strategy. Gilmore pointed to a disciplined manager selection process and a growing share of fee-free co-investments as key drivers of improved outcomes. Since its 2022 strategic overhaul, the fund has cut private equity management fees by 10%.
Public equities, which make up 39% of the portfolio, were the fund’s top performer, returning 16.8%. Nonetheless, CalPERS leadership maintains that private equity remains central to its long-term return objectives.
Still, the strategy has drawn criticism. Margaret Brown, a former CalPERS board member and current president of the Retired Public Employees’ Association of California, warned that the growing allocation could pose excessive risk to a fund relied on by millions.
The comments come amid a shifting backdrop for private equity globally. According to Bain & Company, annual distributions as a share of net asset value fell to 11% in 2024, down from a 29% average between 2014 and 2017 – highlighting persistent exit and liquidity constraints across the industry.
