Active private equity funds generated USD24.2 billion in realised net gains for the California Public Employees' Retirement System (CalPERS) from 1990 to 30 June, 2015, based on data from the fund’s new Private Equity Accounting and Reporting Solution (PEARS).
During that same time period, PEARS data shows that CalPERS' external investment partners have realised USD3.4 billion from profit sharing agreements with CalPERS.
Over the 2014-15 Fiscal Year alone, CalPERS realised USD4.1 billion in private equity net gains while its external investment partners realised USD700 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," says 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," says 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 USD29.3 billion in original investments, with total realised proceeds – return of original investment plus realised net gain – totalling USD53.5 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 per cent
"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," says 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.
size:14.0pt; font-family:"Helvetica","sans-serif"'>Finally, Fitch views share repurchases as generally shareholder friendly and a contributor to higher leverage ratios. However, given the requirements on BDCs to distribute 90 per cent of taxable earnings on an annual basis, repurchases can help manage a BDC's dividend burden. If the earnings per share accretion through a buyback is greater than any accretion otherwise achievable through new loan investments, then the BDC's creditors benefit from the reduction in share count, lowering cash outflows to support dividends.
Generally speaking, activist campaigns on Fitch-rated entities do not have a rating impact unless Fitch believes the activist has a credible chance of implementing its desired changes and that the changes will be materially adverse to creditors. Fitch believes that not all activist activities have weakened credit profiles, as some have been neutral to mildly positive.
