CalPERS’ Private Equity Allocation Remains Nearly $7B Under Target in Q3

The California Public Employees’ Retirement System continued to have the largest under-allocation to private equity among 352 pension funds worldwide in the third quarter of 2023, while the New York State Common Retirement Fund had the largest over-allocation, according to S&P Global Market Intelligence data.

The median target private equity allocation was $265.5 million, while the median actual allocation was $270.5 million, indicating that the pension funds had a $5 million net over-allocation to private equity in Q3, as of September 22, compared with a $6.4 million net under-allocation to private equity in Q2.

CalPERS was $6.83 billion short of its $60.03 billion target, as its under-allocation grew from $6.81 billion the previous quarter but was still well below the $11.34 billion under-allocation recorded during Q1. The $454 billion pension giant was followed by Swedish pension fund AP7, which had the next-biggest under-allocation, falling $4.62 billion short of its $7.69 billion target. Although CalPERS had the larger under-allocation, it only represented slightly more than 11% of its target, while AP7’s under-allocation represented approximately 60% of its target.

The $254.1 billion New York State Common Retirement Fund had the largest over-allocation among the pension funds during the third quarter at $11.69 billion, up from $11.56 billion the previous quarter. The NYSCRF was followed by the $307.9 billion California State Teachers’ Retirement System’s $8.07 billion over-allocation, a 71% increase from the $4.73 billion over-allocation the previous quarter.

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CalPERS and CalSTRS had the largest private equity allocation at $53.19 billion and $49.83 billion, respectively, while the Burlington (Vermont) Employees’ Retirement System, the Maynard (Massachusetts) Contributory Retirement System and the City of Franklin (Tennessee) Employees’ Pension Plan and Trust had the lowest allocations at $1 million each.

S&P noted that private equity fundraising declined 20.5% worldwide to $444.65 billion during the first half of the year from $559.02 billion in the same period one year ago, which it attributed to a short cash supply among limited partners. S&P also cited Bain & Co.’s mid-year report, which said that buyout funds have a record $2.8 trillion in un-exited assets, more than four times what was held during the global financial crisis.

“That has precipitated a liquidity crunch for limited partners that has contributed to the industry’s abrupt skid in fundraising over the past 12 months,” the Bain report stated.

A steep drop in fund launches is expected this year, according to S&P Global Market Intelligence and Preqin data released in July, which indicated a weak first half with only 319 private equity and venture capital funds entering the market. According to S&P, fund managers would need to launch five times as many funds in the second half of 2023 to match last year’s total of 1,946 fund launches. The analyst also noted that if the first-half figures are repeated during the second half, fund launches will have decreased 67.2% from 2022.