FacebookTwitterRedditEmail

Why Private Equity Isn’t a Good Investment for CalPERS

Warning lights are flashing on the declining performance of private equities compared to public stock markets, and sophisticated investors such as CalPERS are well aware that the high returns of the early 2000s are gone.

Median returns for private equity funds launched since the financial crisis have failed to beat the stock market by enough to compensate for increased risk. Pension plans know that high prices paid to acquire companies today mean lower future returns.

So, does the pension giant plan to reduce its $26.2 billion allocation to private equity? Is it going to outsource management of these investments, pay fees and risk even lower returns?

Instead, staff is asking the California Public Employees’ Retirement System board this week to lower the bar. This may make private equity investments look better, but will do nothing to assure that these investments earn adequate returns.

The current benchmark is two-thirds U.S. stocks, one-third foreign plus 3 percent for the added risk. The proposed benchmark gives less weight to better performing U.S. stocks and cuts the risk premium to just 1.5 percent.

Does the staff believe that investing in private equity has become less risky? Or is this an admission that returns will be lower? Perhaps the staff is just looking for an easy “A.” The new benchmark will be much easier to beat and practically guarantees them a good grade.

The CalPERS board is charged with overseeing the prudent investment of taxpayer dollars and protecting the retirement earnings of workers. It should reject the new benchmark and require an honest assessment of future prospects for private equity performance. And it should ask the staff for serious recommendations for how to address lower returns.

This article originally appeared in the Sacramento Bee.

More articles by:
bernie-the-sandernistas-cover-344x550
February 24, 2020
Stephen Corry
New Deal for Nature: Paying the Emperor to Fence the Wind
M. K. Bhadrakumar
How India’s Modi is Playing on Trump’s Ego to His Advantage
Jennifer Matsui
Tycoon Battle-Bots Battle Bernie
Robert Fisk
There’s Little Chance for Change in Lebanon, Except for More Suffering
Rob Wallace
Connecting the Coronavirus to Agriculture
Bill Spence
Burning the Future: the Growing Anger of Young Australians
Eleanor Eagan
As the Primary Race Heats Up, Candidates Forget Principled Campaign Finance Stands
Binoy Kampmark
The Priorities of General Motors: Ditching Holden
George Wuerthner
Trojan Horse Timber Sales on the Bitterroot
Rick Meis
Public Lands “Collaboration” is Lousy Management
David Swanson
Bloomberg Has Spent Enough to Give a Nickel to Every Person Whose Life He’s Ever Damaged
Peter Cohen
What Tomorrow May Bring: Politics of the People
Peter Harrison
Is It as Impossible to Build Jerusalem as It is to Escape Babylon?
Weekend Edition
February 21, 2020
Friday - Sunday
Anthony DiMaggio
Election Con 2020: Exposing Trump’s Deception on the Opioid Epidemic
Joshua Frank
Bloomberg is a Climate Change Con Man
Jeffrey St. Clair
Roaming Charges: Billion Dollar Babies
Paul Street
More Real-Time Reflections from Your Friendly South Loop Marxist
Jonathan Latham
Extensive Chemical Safety Fraud Uncovered at German Testing Laboratory
Ramzy Baroud
‘The Donald Trump I know’: Abbas’ UN Speech and the Breakdown of Palestinian Politics
Martha Rosenberg
A Trump Sentence Commutation Attorneys Generals Liked
Ted Rall
Bernie Should Own the Socialist Label
Louis Proyect
Encountering Malcolm X
Kathleen Wallace
The Debate Question That Really Mattered
Jonathan Cook
UN List of Firms Aiding Israel’s Settlements was Dead on Arrival
George Wuerthner
‘Extremists,’ Not Collaborators, Have Kept Wilderness Whole
Colin Todhunter
Apocalypse Now! Insects, Pesticide and a Public Health Crisis  
Stephen Reyna
A Paradoxical Colonel: He Doesn’t Know What He is Talking About, Because He Knows What He is Talking About.
Evaggelos Vallianatos
A New Solar Power Deal From California
Richard Moser
One Winning Way to Build the Peace Movement and One Losing Way
Laiken Jordahl
Trump’s Wall is Destroying the Environment We Worked to Protect
Walden Bello
Duterte Does the Right Thing for a Change
Jefferson Morley
On JFK, Tulsi Gabbard Keeps Very Respectable Company
Vijay Prashad
Standing Up for Left Literature: In India, It Can Cost You Your Life
Gary Leupp
Bloomberg Versus Bernie: The Upcoming Battle?
Ron Jacobs
The Young Lords: Luchadores Para La Gente
Richard Klin
Loss Leaders
Gaither Stewart
Roma: How Romans Differ From Europeans
Kerron Ó Luain
The Soviet Century
Mike Garrity
We Can Fireproof Homes But Not Forests
Fred Baumgarten
Gaslighting Bernie and His Supporters
Joseph Essertier
Our First Amendment or Our Empire, But Not Both
Peter Linebaugh
A Story for the Anthropocene
Danny Sjursen
Where Have You Gone Smedley Butler?
Jill Richardson
A Broken Promise to Teachers and Nonprofit Workers
Binoy Kampmark
“Leave Our Bloke Alone”: A Little Mission for Julian Assange
FacebookTwitterRedditEmail