CalPERS Private Equity Program Achieves Top-Tier Performance Through Strategic Rebalancing

The California Public Employees’ Retirement System’s private markets program transformation has taken the $500 billion fund from dead last among its peers to the top of performance rankings in three years.

The turnaround, detailed in a board presentation last week by Anton Orlich, managing investment director of private equity, has focused on three core objectives: a rebalancing away from large buyouts toward venture and growth, a rethink of co-investment prioritization, and a commitment to steady deployment.

CalPERS’ $98 billion private equity portfolio returned 7.4 percent annually in the three years ended June 2025, ranking first among the 30 largest US public pension systems. As recently as December 2022, the fund sat at the bottom of that same peer group.

The CalPERS Private Equity Turnaround, Board of Administration Educational Day, January 20, 2026

In 2024, CalPERS’ board voted to raise the fund’s private equity allocation from 13 percent from to 17 percent. But, within that allocation, CalPERS has cut its commitments to buyout funds to 58 percent of total private capital, down from 91 percent three years earlier.

The delta has been allocated to growth equity—now 31 percent of fund commitments, up from 9 percent in fiscal 2022—and a new venture capital program that received 12 percent of commitments in fiscal 2024.

“Growth and venture don’t just have higher returns on average, they also have some diversification from buyout,” Orlich told the board.

Within the remaining buyout allocation, CalPERS has moved away from large-cap funds and prioritized smaller managers.

Middle market funds are now 57 percent of buyout commitments, up from 40 percent in fiscal 2022.

Middle market strategies historically generate stronger returns than large-cap buyout, but the shift is also about maximizing leverage as an LP. In smaller vehicles, CalPERS’ capital is a much larger share of the total fund, which gives the pension greater influence over general partner behaviour.

Supporting the new approach, a revision to CalPERS’ concentration governance now permits the pension to take positions of up to 35 percent of a fund, up from 25 percent previously.

In part, the moves are also about avoiding public relations crises.

CalPERS, along with other public pensions, has had to manage what board president Theresa Taylor described as concerns about “buyouts and corporate restructuring” from constituents and politicians.

In the fund’s view, large-cap buyout strategies disproportionately involve mature companies where workforce reductions and pension modifications are more common.

“It kind of reminds me of the old corporate hostile takeovers of the 80s and 90s,” said Taylor.

That’s part of the reason, says Orlich, that all incremental dollars from the fund’s recent private capital allocation change have gone toward venture and growth, not buyout.

“On average, where would something be more likely to show up as a problem? I would imagine it would be with buyout,” Orlich acknowledged. “We dramatically diversified the portfolio away from those transactions.”

In buyouts, CalPERS says it prioritizes these concerns as part of its manager diligence process and its participation in limited partner advisory committees (where it now holds more sway with its middle market focus).

“We are looking out for these kinds of investments that hurt the workforce. We have some managers that we had really high confidence in, and they have proven not to be so reliable, and these are larger names,” added Taylor.

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Co-investment growth is a key target for many LPs, who see an attractive opportunity to reduce the fee burden from standard commitments. Taking a slightly different approach, CalPERS has deprioritized overall coinvestment allocation in favor of opportunity selection.

“In 30 years of investing, we actually had an outcome where our co-investments underperformed our funds in most periods, even on a net basis,” Orlich said. “That’s something that we’ve been able to reverse in the last three years.”

That’s meant a shift away from a philosophy that pursued co-investment opportunities with every manager relationship.

“We start with the foundation of manager selection and invest in what we think are the best funds, and then we selectively participate in co-investments where we think we are doubling down on the best opportunities that are provided by those funds,” he explained, adding that doing co-investments “for the sake of it” exposes limited partners to adverse selection risk.

CalPERS’ co-investments now outperform the underlying fund portfolios even on a gross basis.

“We’re capturing the full fee and carry savings and then adding a little bit of outperformance from the deal selection,” Orlich said.

But in a challenging fundraising market, CalPERS’ new selectivity hasn’t hurt overall co-investment allocation.

The pension now hits a 40 percent co-investment rate against its $15.5 billion annual commitment budget—a target it had missed in the three fiscal years prior to the launch of its turnaround strategy.

The economics: each $1 billion deployed via co-investment instead of fund commitments saves around $400 million in management fees and carried interest over the life of the investments. At current deployment rates, that’s around $25 billion in fee savings over a ten-year period.

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Perhaps the most consequential strategy shift is CalPERS’ commitment to sustained private markets deployments across market cycles — a response to the fund’s disastrous “lost decade.”

In 2006 and 2007, CalPERS made $24 billion in new commitments to private capital. After being burned by the subsequent financial crisis, the fund retreated over the following decade—sitting on the sidelines during a historically strong run for the asset class.

The result was an estimated $11 billion to $18 billion in foregone returns.

As part of the 2024 vote to increase the fund’s private capital allocation, CalPERS also formalized its intent to prioritize consistent deployment regardless of market conditions. The fund has now committed around $15.5 billion in each of the past three fiscal years, avoiding outsized exposure to the challenged 2020 and 2021 vintages that have caused issues for some peers.

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CalPERS’ private markets turnaround has made impressive progress in a relatively short time, though it’s still early days. Orlich, however, is confident in sustained improvement:

“The team has internalized the strategy, and there is shared ownership over the portfolio,” he told a board member. “We have done very well with our manager selection and have gotten our process to a point where it’s repeatable. We’ve done very well with our co-investment selection—that is also repeatable.”

At the very least, CalPERS’ jump to the top of the benchmarking table is proof that something’s working.