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CalPERS eyes managed accounts

The $234bn retirement system’s 2012 roadmap includes plans to engage the secondary market and develop a co-investment and managed accounts programme.

The California Public Employees’ Retirement System will lay out its private equity plans for the 2012-2013 fiscal year at its investment committee meeting this week, announcing its intention to develop co-investment and managed accounts programmes.

CalPERS’ roadmap indicates the firm would like to explore managed accounts. Separate customised accounts have become increasingly popular among some of the industry’s largest LPs.

The California State Teachers’ Retirement System appears to be considering a similar strategy to take advantage of discounted fees and preferred returns, according to documents. Its decision to pursue managed accounts comes only a few months after customised accounts managed by Kohlberg Kravis Roberts and Apollo Global Management were created for the Teachers’ Retirement System of Texas. New Jersey’s retirement system also has established a customised account with The Blackstone Group, allocating up $1.5 billion in separate account commitments to be used for investments across various strategies, including real assets and credit.

“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 a recent, exclusive interview. “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.

The roadmap, which was included in the committee’s review of the alternative investments management programme, also indicates that CalPERS will use the secondary market to rebalance and restructure the AIM portfolio by adjusting vintage year, geographic and general partner concentration.

“We will consider another secondary sale, but the market is very different now. And I'm not so keen on booking a NAV loss,” Dear said. “So it will take time to reduce the size of the portfolio.”

CalPERS also intends to continue cutting the cost of the alternatives programme by internalisation of investment management, capital call management, due diligence and underwriting functions; implement research, analytics and risk management function within AIM; and leverage its brand to develop a co-investment programme, according to the roadmap.

CalPERS AIM programme represents about 14 percent of the total $234 billion portfolio, but about 60 percent of the costs, Jane Guillot, chief operating officer at CalPERS, said at Private Equity International’s CFOs & COOs Forum in New York in January. Part of that cost is dedicating resources to monitor and manage the portfolio, which includes 350 funds and 140 GP relationships, Guillot said at the time.

At its investment committee meeting, the retirement system will consider extending the contract of its private equity board investment consultant, Pension Consulting Alliance, through 2014. CalPERS selected PCA in 2009, awarding the consultant a three-year contract that expires in June. The contract includes an option to extend the contract for two additional years.