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CalPERS to create direct private equity arm

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California Public Employees Retirement System (CalPERS), one of the largest pension funds in the world, is launching a separate entity to invest directly in private equity as it tries to expand its allocation to the asset class to 10%.

After over a year of deliberations, the fund yesterday unveiled two “strategic business models” for its private equity programme, which it said would create the new entity, called CalPERS Direct. This was part of a wider review of its overall private equity programme, it said.

The pension fund said it anticipated it would need to invest up to $13bn a year in private equity to achieve a 10% allocation of the portfolio. A spokeswoman confirmed that this was across CalPERS’ entire private equity investment programme.

The pension fund currently has 7.6% of its overall $354.4bn (€300.8bn) portfolio invested in private equity.

Ted Eliopoulos, outgoing CalPERS’ chief investment officer, said: “Our investment team has spent months exploring options in order to design an approach to private equity that takes advantage of our size and brand. 

“We believe it will drive stronger private equity returns and help achieve economies of scale over time,” he said.

CalPERS Direct would comprise two funds, according to the pension fund.

One would focus on late-stage investments in technology, life sciences, and healthcare, while the other would concentrate on long-term investments in established companies.

The funds will operate alongside CalPERS’ existing private structure, which it said typically invested in co-mingled private equity funds.  

CalPERS Direct, which is planned to launch in the first half of 2019, would be governed by a separate, independent board advising on allocation as well as longer-term capital market perspectives, the pension fund said.

As things stand, CalPERS invests in private equity via direct and co-investments with the fund’s existing general partners, via direct secondary investments, and via funds of funds — for specific mandates.

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