In a strategic overhaul of its private equity allocations, the California Public Employees Retirement System (CalPERS) has increased its focus on early-stage and rapidly expanding companies, aiming to enhance portfolio diversification and returns. As the nation’s largest public pension fund managing assets exceeding $500 billion, CalPERS has demonstrated a clear shift by expanding its investment in growth equity by 31% during the fiscal year ending June 2024. This marks a substantial increase from growth equity exposure standing at 9% two years prior.
Anton Orlich, CalPERS’ managing investment director of private equity, articulates the fund’s rationale by highlighting that growth and venture capital not only tend to generate higher average returns but also offer diversification benefits distinct from buyout investments. This strategic perspective underpins CalPERS’ commitment to recalibrating its private equity portfolio away from more mature buyout funds toward investments with earlier-stage companies and venture capital opportunities.
In line with this approach, CalPERS initiated a dedicated venture capital program, which in 2024 represented 12% of its private equity commitments. The rebalancing strategy has also translated into a marked reduction in buyout allocation, contracting from 91% in fiscal year 2020-21 to 58% by 2023-24, reflecting the pension fund’s evolving investment preference.
Overall, the private equity allocation increased from 13% to 17% of CalPERS’ portfolio during the same period, signifying an incremental dedication of capital to this asset class. Notably, investments in growth equity and venture capital now approach nearly one-quarter of the capital deployed on a cost basis within private equity. The fund’s internal analyses suggest that continuation of the current investment model, coupled with sustained outperformance, should drive improved returns and an increasing share of capital invested in these segments.
CalPERS’ private equity portfolio, valued at $98 billion, has demonstrated superior performance metrics, achieving a one-year return of 14.3% and a three-year return of 7.4% through June 2025. This performance places CalPERS as the top performer among the 30 largest U.S. public pension funds, underscoring the effectiveness of its strategic realignment.
Several factors contribute to this turnaround, including the integration of environmental, social, and governance (ESG) criteria within investment due diligence. CalPERS has expanded governance and sustainability considerations, aligning investment decisions with its established values—particularly in human capital management. The fund has curtailed or discontinued commitments that diverged from these principles. Additionally, cost-efficiency initiatives such as utilizing separately managed accounts and co-investments are instrumental in boosting net returns by lowering expenses associated with external management fees.
Tom Toth from Wilshire Advisors, addressing the CalPERS Board in a September meeting, noted that while long-term private equity returns remain challenging, current momentum is positive. Private equity continues to act as a vital driver of overall fund returns, reinforcing its strategic importance within the portfolio.
CalPERS’ evolving private equity strategy reflects a nuanced balancing of risk and growth potential by allocating increased capital to fast-growing sectors of the market while structurally decreasing reliance on traditional buyouts. This approach is consistent with an effort to capture higher returns and enhance diversification benefits within a complex investment landscape.
The pension fund’s successful integration of ESG factors and cost-conscious investment frameworks further support its objective to achieve sustainable, long-term returns for its beneficiaries. The deliberate reduction in buyout exposure and the concurrent expansion into venture and growth equity demonstrate a forward-looking stance toward private equity management amid changing market dynamics.
As the fund monitors performance and adjusts allocations, private equity’s growing role—now comprising nearly a fifth of overall assets—positions CalPERS to potentially capitalize on emerging opportunities within early-stage companies, while managing risk through diversification and value-aligned investments.