Calpers, the US’s biggest public pension plan, is to increase its holdings in private markets by more than $30bn and reduce its allocation to stock markets and bonds in an effort to improve returns.
A proposal to increase the $483bn fund’s positions in assets such as private equity and private credit from 33 per cent of the plan to 40 per cent was approved on Monday, according to an announcement by the fund and notes from its board meeting.
The formal approval comes two years after Calpers admitted that a decision to put its private equity programme on hold for 10 years had cost it up to $18bn in returns.
However, a review of its investment policy found that, despite the gains it had already missed, private equity was still the asset class with the highest expected long-term total return.
“Strong and ongoing growth in private equity returns is behind this measured and appropriate increase,” said Calpers trustee David Miller, chair of the investment committee.
“Market conditions are evolving and the investment team needs latitude to deploy capital intelligently to keep the fund on track for sustainable returns.”
According to analysis published by Calpers alongside its board notes, private equity was the top-performing asset class in the decade to June 30 2023, with annualised returns of 11.8 per cent. That compares with 8.9 per cent from public equities and 2.4 per cent from fixed income. The documents did not disclose if the figures took account of fees.
The portfolio shake-up, which was confirmed after a scheduled asset allocation review, will bring the California-based plan into line with other big retirement systems in the US, including Calstrs, which has just over 40 per cent of its portfolio in private markets.
As part of the move, Calpers will increase its bet on private equity from 13 per cent to 17 per cent of its portfolio, although this could potentially rise as high as 22 per cent.
At the same time, it is pulling back from investing in stock markets, with its allocation to equities set to fall from 42 per cent to 37 per cent of its portfolio. It will also trim its allocation to fixed income from 30 per cent to 28 per cent.
In 2021, Calpers’ board approved an expansion into private assets including private equity, real assets and private debt, from 21 per cent to 33 per cent of the portfolio, and also gave itself the ability to borrow money to invest in assets that would help diversify its holdings.
Last year the Financial Times reported that Calpers was planning a multibillion-dollar move into international venture capital, as the fund moved towards investing in riskier assets to drive returns.
The fund also reported a return of 10.3 per cent last year. It is yet to announce a replacement for chief investment officer Nicole Musicco, who resigned last year after 18 months in the role.