Private Equity at Work: CalPERS Private Equity Returns: Good, But Not Good Enough

July 16, 2014

As we noted in a recent post:

Private equity investors are flush with cash distributions. Now that money is finally rolling in, many seem blithely unaware that the typical PE fund launched since 2005 has failed to beat the stock market. Investors would have been better off putting their money in an index fund that tracked the market than in these PE funds – and would have had less risk and more liquidity to boot. Yet PE investors are ploughing cash back into new PE funds. According to private equity data research firm PitchBook, 2013 was the best year for private equity fundraising since the financial crisis struck in 2008, and the pace has continued into 2014.

CalPERS, the largest public pension fund in the U.S. with more than 1.6 million members in its retirement system, just announced its preliminary returns for the 2013-2014 fiscal year that ended on June 30. Comparing the performance results for CalPERS’ investments in private equity with the performance of its investments in the stock market illustrates the point:

Public Equity


Private Equity


CalPERS, like all pension funds, is focused on achieving “the best risk-adjusted returns we can for our members” according to its Interim Chief Investment Officer.  Typically, as we discuss in our book Private Equity at Work: When Wall Street Manages Main Street, pension funds are looking for their riskier and far less liquid investments in private equity to provide returns that beat the stock market by 3 to 4 percentage points. Instead, CalPERS reports that its investments in public equities traded in the stock market beat its private equity returns by 4.8 percentage points.

It is no wonder, then, that, as PrivateEquityLaw360 reported in May 2014, CalPERS approved an interim plan to cut its private equity strategic asset allocation for the second time in three months.  Other pension funds should listen up.

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