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The California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the United States, has signaled an increased appetite for wagering on private equity to bolster returns. The shift is significant as it indicates a continued preference by the fund manager to diversify its portfolio, which includes more traditional investments such as stocks and bonds.
The pension fund recently allocated $30 billion to private equity investments across Europe, Asia, and the United States, a nearly 60% increase from just five years ago when the fund allocated $18.9 billion to private equity. The increased allocation brings the total amount CalPERS currently allocates to private equity to more than $90 billion.
The move makes sense as private equity investments have helped to bolster the fund’s returns for several years. In its recently released annual review, CalPERS reported that its total asset value grew by 12.5% in 2017, up from 7.5% in 2016. Private equity investments were a major driver of the fund’s overall returns, delivering an 18.3% return last year, up from 12.5% the previous year.
CalPERS chief investment officer, Ted Eliopoulos, hailed the fund’s increased allocations to private equity as a “smart way” to capitalize on the diversified returns that come from investing in a wide range of private companies across industries.
Eliopoulos went on to confirm the pension fund’s strategy to “double down” on private equity investments in the coming years, noting that such investments have the potential to deliver long-term returns for the benefit of current and future retirees.
The news from CalPERS should give investors confidence that experienced pension fund managers are still looking to make significant investments in private equity and are looking to gain an edge in the markets by diversifying their portfolios in pursuit of higher returns.