Earlier this year, CalPERS reported a preliminary 11.6% return on our investments for fiscal year 2024-25. This strong result – the best in the last four fiscal years – was driven largely by the strength of our private equity investments.
What is Private Equity and Why Does it Matter to Your Pension?
Our top priority at CalPERS is to protect and grow the retirement security you’ve earned. To do that, we invest your contributions across a wide variety of areas – including stocks, bonds, and what are called “private market investments,” which includes private equity and real estate.
The term “private equity” simply means investments in companies that aren’t listed on a stock exchange. These might be mature businesses, firms that need capital to expand or new innovative companies. Because they aren’t public companies, investing in them requires our investment team to develop specialized expertise and conduct careful due diligence.
Why does CalPERS invest in private equity?
This asset class has been CalPERS’ top performer over the last 20 years — outperforming public equity. Private equity delivered a 14.3% return in this most recent fiscal year, which added $12.1 billion to the overall value of the fund net of fees.
Our private equity investments have produced particularly strong results since 2022, when we launched a new strategy designed to more aggressively capitalize on opportunities, maximize returns, and reduce costs. Since that time, we have increased our private equity investments from $50 billion to $92 billion, diversifying the investments to reduce risk, selecting higher-returning investment managers and maintaining a disciplined approach to the asset class.
For the past five years, our private equity program has ranked as the best-performing among its peers, based on an analysis by Wilshire Associates, the independent investment consultant to the CalPERS board. We also achieved significant cost-savings through co-investments and customized investment vehicles. These investments are made alongside our investment partners instead of through traditional funds and come with lower fees and more control. These account for about 60% of our investments since 2022.
What about transparency?
We understand that some members have questions about private equity because these companies don’t report as much information publicly as those listed on exchanges. That’s why we’re committed to transparency. The private equity firms CalPERS is invested in are listed on our website, so you can see where we’re putting your money to work. We list the amount that we have committed to our partners, how much we’ve invested, and the performance of each private equity fund quarterly. Annually, we disclose fees and profit sharing paid to our managers – commonly known as “carry,” a share of profits meant to incentivize better performance.
We also provide regular updates to the CalPERS board who have a fiduciary duty to ensure we are making the most prudent investments we can. What we don’t do is detail the individual companies in which the private equity funds have invested, which is exempt from disclosure under California law. Doing so would hurt our competitiveness and make it harder for us to get the best deals for our members.
Bottom Line: CalPERS members deserve to benefit from private equity returns
Private equity is just one piece of the puzzle, but it’s an important one. It helps us grow the fund and keep your pension secure for the long term. The results speak for themselves: Private equity has been our strongest-performing asset classes for the last 20 years, delivering billions in profits that help strengthen the pension fund.