California pension intends to reduce private-equity managers

The private-equity decision followed others meant to set the pension on a more stable course. Calpers in September announced plans to divest the entire $4 billion that it invested with hedge funds, saying they’re too expensive and complex. Calpers has been working to reduce risk in its portfolio after the global financial crisis wiped out more than a third of its wealth, forcing it to increase contributions from taxpayers to cover losses.

Calpers invests $31.2 billion, or about 10 percent of its portfolio, in private equity. Former Chief Investment Officer Joe Dear first began seeking concessions after the Institutional Limited Partners Association, a group representing private-equity institutional investors, in 2009 began pushing rules seeking to give clients more rights while reducing manager fees. Dear died last year.

Calpers earned 18.4 percent in the fiscal year that ended June 30 as global stock indexes rose to records. At the time, the system said private-equity investments gained 20 percent. Calpers’ 10-year return on private equity of 13.3 percent as of June 30 fell short of its own benchmark by 2.1 percentage points, according to the pension system’s data. The performance also missed in one-, three- and five-year periods.