CalPERS and Blackstone form custom account

The Blackstone Group has notched another major public pension in its growing business of customised accounts for limited partners. 

The California Public Employees’ Retirement System committed $500 million to a managed account operated by a firm, a spokesperson for the system told Private Equity International. 

The $500 million account will be managed through Blackstone’s Tactical Opportunities business, which is comprised of a number of separately managed accounts, targeting investments that would not fit in the firm’s current private equity, real estate and credit mandates, according to multiple sources. In addition to CalPERS, the New Jersey Division of Investment has also committed to a customised account through Blackstone Tactical Opportunities, which is targeting $3 billion to $5 billion in commitments, according to state documents. 

Blackstone declined to comment on this story. 

The firm may use capital from several of the separate accounts for certain investments, said one market source. 

Managed or “customised” accounts have become increasingly popular among major LPs, particularly as many institutional investors try to cut costs incurred through management fees by reducing their number of relationships with fund managers. Account terms, including what CalPERS will pay in management fees, were unavailable at press time. 

The Teacher Retirement System of Texas jumpstarted the trend in the US when it pledged $3 billion each across two separate accounts managed by Kohlberg Kravis Roberts and Apollo Global Management last November. Afterwards, both CalPERS and the California State Teachers’ Retirement System announced plans to explore committing to managed accounts. 

“I think it would be better if fees came down generally for all investors and that the carry was adjusted more appropriately,” CalPERS CIO Joseph Dear told Private Equity International in an exclusive interview earlier this year. “But if that’s not going to happen, then investors with strategic positions and the capability to make large commitments should go forward and make more sensible arrangements with the managers. We’ve now seen proof in the marketplace that that’s possible to do.

“If you’re going to have fewer relationships and maintain the size of your programme, then the size of your commitment is going to go up. It only makes sense from a business standpoint to leverage those large commitments against better alignment of terms and conditions,” Dear said.

In 14 May committee meeting materials, CalPERS’ investment staff recommends that the board approve changes to its investment policy that would differentiate what it has called a “customised investment account” from traditional co-mingled funds, which typically include investments from several LPs.

The $231.9 billion retirement system’s existing policy allows for investments in customised accounts, which are similarly structured to traditional vehicles, but “PE staff believes it would be prudent to have an explicit delegation for customised investment accounts”, according to documents. 

Under the proposed definition, customised investment accounts are structures where, along with the general partner, CalPERS would be the sole investor. This structure may have an individual mandate or may invest alongside similarly structured funds or funds of funds, according to CalPERS documents. 

CalPERS is one of private equity’s most prominent limited partners. Its private equity portfolio includes $32.1 billion in holdings, 14 percent of its overall allocation, as of 31 January, according to state documents.