By Lauren Bailey
In late 2022, the California Public Employees’ Retirement System began overhauling its private equity strategy, betting that the program had the potential to deliver higher returns at greater scale for its pensioners.
Two years later, that tactic has taken the pension fund’s private equity portfolio from underperforming to outperforming its peers over one (11.3% vs 6.8%, respectively) and three (5.3% vs 2.6%) years. Indeed, the portfolio’s performance should only get better over the long term, said Anton Orlich, managing investment director for CalPERS’ private equity group, while speaking during a recent board meeting.
Prior to the move, the portfolio had been outperforming public equity in most periods; however, its returns lagged select domestic and global peers, he said. In order to improve returns and build resiliency into the portfolio, CalPERS enhanced diversity by vintage year, strategy segment, fund size, and general partner. “We improved investment selection, and we pursued more cost-effective implementation.”
Orlich noted the decision to increase the fund’s private equity allocation helped provide scale; the portfolio currently sits at $92B of net asset value — roughly 17.5% of the total portfolio.
“Consistency is a key theme of the current strategy,” he said, pointing out that the investment team recognized the importance of staying the course, despite cyclical dynamics that forced a correction within private markets over the last few years. By maintaining consistent commitment levels in 2023, 2024, and in 2025, it prevented any disproportionate fallout to the private equity portfolio. Notably, Orlich said staff expects the fund to end the fiscal year 2024-25 well within its target of $15.5B in commitments.
To build resiliency into the portfolio, CalPERS diversified in growth and venture buyout commitments, increasing these commitments from 9% in FY 2020-21 to 43% in FY 2023-24. It also reduced buyout commitments from 91% in FY 2020-21 to 58% in FY 2023-24 and large/mega cap commitments from 73% in FY 2021-22 to 43% in FY 2023-24.
“Staff believes these moves are contributing to outperformance,” said Orlich. “For example, the venture program launched in 2022 is the strongest-performing strategy segment with a 14.7% one-year time-weighted return.”
He noted staff is focusing on manager selection and are moving into private equity segments that offer higher return dispersions by leveraging manager strengths.
Orlich also highlighted secondaries as a key component helping the pension fund realize structural alpha. “CalPERS has been a net buyer on the secondary market, providing liquidity to limited partners who need it for various reasons, such as allocation to the asset class beyond whether governance allows or unanticipated immediate cash needs.”
Co-investments have also helped the fund boost returns, in part by substantially reducing fees to external managers, said Colin Crane, CalPERS’ investment director for the private equity group, who also spoke during the meeting. The fund has earmarked 40% of its commitment target of $15.5B to co-investments. Over the course of a decade, he said the portfolio could save nearly $25B in management fees and carry savings, which benefits beneficiaries.
The impact of CalPERS’ overhaul is coming to light in the performance data, said Orlich. “CalPERS PE has gone from underperforming the universe over the one, three, and five periods to outperforming meaningfully on the one and three year and erasing a 430 basis point deficit for the five year on an IRR basis.”
Over five years, the pension fund returned 12.8%, surpassing the policy benchmark of 11.9%, as of Mar. 31, 2025.
