CalPERS Cuts Private Equity Allocations, Demands Fee Reduction from Apollo, Others

(November 25, 2009) – America’s largest public pension fund’s private equity contributions fell by more than half in the first seven months of 2009.

Compared to figures from 2008, the California Public Employees’ Retirement System (CalPERS) allocated 62% less cash to private equity funds through July, as well as demanded fee reductions, according to Bloomberg. While the figure is still $2.23 billion, this is down significantly from $5.93 billion from January through July in 2008.

Bloomberg also is reporting that the fund is reconsidering its relationship with numerous fund managers, the most prominent being Apollo Global Management. The New York-based fund has received commitments of $4 billion across more than a dozen funds from CalPERS, with nearly 75% of that amount being called already. CalPERS, according to Bloomberg, does not want to part with the remaining $1 billion, and is asking for a reduction in management and other fees from Apollo. The private equity firm is likely reluctant to alter the terms of its fee structure with such a prominent investor for fear of others demanding similar treatment.

The reduction in private equity allocations and requested fee reductions follows a severe downturn for CalPERS’ alternative returns in 2008. The fund as a whole was down 23% in that year; alternatives as an asset class were down 31%. As a result, the fund, under its new CEO Joseph Dear, has reduced overall alternative allocations significantly, committing just $1.13 billion through July, compared to $12.2 billion for all of 2008 and $15.9 billion in 2007.