CalPERS’ credit portfolio generates 23.6% return

Despite amounting to only 17% of CalPERS' $32bn private equity programme, the performance of the retirement system's credit strategies portfolio drove approximately one third of the programme's 13.8% one year return.

The California Public Employees’ Retirement System’s credit portfolio generated a 23.6 percent return on a one year basis, according to documents made available by the retirement system.

“All major sectors of the PE program contributed positive results over the last year. Buyouts were the largest contributor to performance as the sector continued to experience valuation increases,” according to the report. “Credit related, representing 17 percent of the program, was the second largest contributor to results for the year.”

The performance of that 17 percent allocation accounted for approximately a third of the $32 billion portfolio’s 13.8 percent return this year, according to a Pension Consulting Alliance report. The retirement system set a 15 percent target to credit related strategies with a range of 10 percent to 25 percent.

Credit also performed well on a three year basis, generating a return of 19 percent, according to the report. Approximately 11 percent of the portfolio’s $9.4 billion in unfunded commitments are dedicated to credit related vehicles.

Although credit strategies have performed very well for the retirement system, Pension Consulting Alliance’s outlook for distressed debt is mixed.

“Debt pricing remains near par (according to the Leveraged Loan Index produced by the Loan Syndications and Trading Association), minimizing the near-term opportunity set for trading strategies,” Pension Consulting Alliance said in its report. “The magnitude of debt that was “amended and extended” during the crisis, pushed out the maturity dates and subsequently reduced the perceived near-term opportunity set for debt-for-control strategies.”