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The facts on CalPERS private equity program

Tuesday, September 08, 2015
Opalesque Industry Update - A history of success

Since its private equity program began in 1990, its investment returns (net of fees, including carried interest) have averaged:

1-year: 8.9 percent
3-year: 14.1 percent
5-year: 14.5 percent
10-year: 12.2 percent
20-year: 12.3 percent

During these time periods, the returns have outperformed its peers in public pensions, according to an August report to the CalPERS Board of Administration.

A focus on due diligence

CalPERS invests in private equity as a Limited Partner, or LP, solely through the use of external investment managers, known as General Partners, or GPs. The pension has a rigorous and comprehensive due diligence system in place for selecting external investment managers and evaluating private equity investment proposals, and for continuously monitoring of its private equity investments.

For example, all investment proposals must be submitted online on a standardized template via its Investment Proposals Submission webpage, and their review follows consistent and thorough underwriting policies and procedures. All investments are also reviewed by third-party investment advisors and independent investment consultants.

CalPERS' proprietary Manager Assessment Tool (MAT) provides a fair and uniform process that allows private equity staff to fully evaluate the external manager landscape. In an analysis, Cambridge Associates, an independent consultant, has praised the firm for policies and procedures, including the MAT, that are, in many cases, better than industry best practices for external investment manager selection and due diligence.

A Commitment to Transparency

CalPERS provides detailed portfolio and performance reports to the CalPERS Board on a monthly, bi-annual and annual basis. The reports are public information and available on its website. Additionally, the website contains a Private Equity Program Fund Performance Review tool that offers detailed performance data for every private equity fund in which they invest.

CalPERS has been working for over three years to increase transparency and improve its reporting of private equity metrics. The pension has just launched one of the most comprehensive reporting systems in the industry, the Private Equity Accounting and Reporting Solution (PEARS). PEARS will enable them to exhaustively track all their investments, including carried interest, providing greater transparency to the program. CalPERS will be releasing comprehensive carried interest information later this year.

A passion for leadership

CalPERS has advocated for greater transparency and reporting of fee information since its private equity program began 25 years ago.

CalPERS is co-founders in the early 1990s of the Institutional Limited Partners Association (ILPA), a global, member-driven organization dedicated to advancing the interests of private equity Limited Partners through education, research and advocacy. Working with ILPA, it has continually pushed for procedural and cultural changes throughout the private equity industry. With its support, ILPA has just launched an initiative aimed at creating more robust and consistent standards for fee and expense reporting and for compliance disclosures in the private equity industry. Read the news release announcing this program.

CalPERS also support the work of the Securities and Exchange Commission to bring additional transparency to the private equity industry, and are at the forefront of the many investors taking steps in that direction.

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