CalPERS Evaluates Private Equity Returns Compared to Public Markets

During a recent Asset Liability Management Webinar hosted by the California Public Employees Retirement System (CalPERS), discussions centered on the potential for enhanced returns through strategic asset selection, even when maintaining similar risk levels. This topic is particularly relevant as CalPERS continues to navigate the complexities of investment strategies in a fluctuating economic landscape.

A key point raised during the meeting involved the assertion that careful asset selection could yield an increase in returns by 70 basis points, or 0.7%, without elevating risk. This claim sparked a critical inquiry regarding the rationale behind achieving higher returns while ostensibly taking on the same level of risk. The discussion highlighted the historical performance of private equity compared to public equity, suggesting that private equity investments have consistently outperformed their public counterparts when adjusted for risk.

The conversation emphasized that while public equity markets are generally more accessible, they tend to be smaller, more leveraged, and less liquid. These characteristics contribute to a risk-return profile that, according to CalPERS representatives, justifies the pursuit of private equity investments. The implication is that by diversifying into private equity, CalPERS can capitalize on opportunities that may not be available within a traditional passive portfolio.

This dialogue underscores the ongoing challenge of balancing risk and return in investment strategies, particularly for large public pension funds like CalPERS. As the organization continues to explore avenues for enhancing returns, the insights shared during the webinar reflect a broader trend in asset management that prioritizes strategic selection over passive investment approaches.

In conclusion, the discussions from the webinar reveal a commitment to refining investment strategies that can potentially yield higher returns without increasing risk. As CalPERS moves forward, the outcomes of these strategies will be closely monitored, with stakeholders eager to see how these decisions impact the fund's overall performance and sustainability.