CalPERS PE Strategy Overhaul Delivers Top Returns

Internal Rate of Return (IRR) Differences Between CalPERS PE and State Street PE Index (SSPEI)

What's New

CalPERS Private Equity has achieved a stunning performance turnaround, catapulting from 17th place in 2022 to the top performer among America's 30 largest public pension fund private equity programs in 2024. According to CalPERS' Private Equity Annual Program Review, the nation's largest pension fund generated an 11.9% one-year return while managing a massive $92.1 billion portfolio — proving that scale doesn't have to sacrifice performance.

Why It Matters

This transformation demonstrates that even the world's largest institutional investors can successfully pivot strategies and compete with smaller, more nimble peers. CalPERS' success could reshape how mega-funds approach private equity allocation, particularly around co-investments, manager diversification, and strategic rebalancing away from traditional large buyout dominance.

Big Picture Drivers

• Strategic Diversification: Dramatic shift from 73% large/mega buyout exposure in 2021 to just 43% in 2024, while scaling growth and venture investments from 9% to 43% of annual commitments

• Co-investment Excellence: Finally achieved long-standing 40%+ co-investment target after years of underperformance, enabling direct deal access without management fees

• Manager Selection Revolution: Increased commitments to emerging and diverse managers from $4.1 billion to $6.3 billion annually, expanding beyond traditional relationships

• Cost Optimization Focus: Leveraged secondaries market as both buyer and seller to rebalance portfolio composition and reduce deployment delays

• Consistent Allocation Discipline: Maintained steady $15.5 billion annual commitment pace to avoid pro-cyclical timing mistakes that plagued previous strategies

Key Portfolio Metrics

• Total Assets: $92.1 billion net asset value, making CalPERS 1.7x larger than the second-biggest public pension PE program

• Strategy Allocation: 68.7% Buyout, 23.7% Growth, 4.3% Opportunistic, 2.3% Venture, 1.0% Credit across 394 funds and 133 managers

• Geographic Split: 67.3% US-focused investments, 22.4% Europe, 6.4% Emerging Markets, maintaining American-centric approach

• Annual Commitments: $15.5 billion target commitment level maintained consistently for four consecutive fiscal years

Performance Drivers

• Current Strategy Success: New approach launched in late 2022 generates 1.25x annualized TVPI versus 1.10x for legacy strategy despite shorter hold periods

• Index Outperformance: Erased 430 basis point deficit to State Street PE Index benchmark in just two years through strategic execution

• Peer Leadership: Rose from 30th out of 30 in 3-year returns (2022) to 2nd place (2024), demonstrating sustained improvement beyond one-year gains

• Cost Efficiency: Enhanced co-investment focus projected to save $400 million per $1 billion invested compared to traditional fund structures

By The Numbers

• $25 billion: Projected fee savings over 10 years from enhanced co-investment strategy versus traditional fund investing

• 430 basis points: Performance deficit to State Street PE Index that was completely erased in just two years of strategy execution

• 68%: Current participation rate in ESG Data Convergence Initiative among general partners, up from 49%

• $1.4 billion: Climate-focused co-investments funded as part of $100 billion sustainability goal by 2030

Key Trends to Watch

• Performance Sustainability: Whether CalPERS can maintain top-tier returns as current strategy investments mature beyond their early-stage valuations.

• Scale Impact: How other mega-funds adapt CalPERS' playbook of diversification and co-investment focus to overcome traditional size disadvantages.

• Market Conditions: Performance resilience as higher interest rates and reduced distribution activity continue challenging private equity returns industry-wide.

• ESG Integration: Expansion of climate-focused investments toward CalPERS' $100 billion sustainability goal by 2030 while maintaining return targets.

The Wrap

CalPERS has proven that strategic discipline can overcome the performance headwinds typically associated with massive scale in private equity. By diversifying away from large buyout concentration, achieving cost-effective co-investment targets, and improving manager selection, the pension giant has repositioned itself as a performance leader rather than a size-constrained laggard. The success validates institutional investors' ability to actively manage private equity portfolios rather than passively accepting market returns.