Private Equity in our backyard

To draw an accurate picture of the performance of private equity and hedge funds, we defer to a mega-fund in our own backyard – the CalPERS Alternative Investment Management (AIM) Program. Since 1990, this fund has invested in four major areas of private equity – Venture Capital, Buyout Financing, Expansion Capital, and Mezzanine Debt Financing through “General Partners” or fund managers. This fund has increased California’s coffers by about $10.2 billion during this period; however, the performance of this CalPERS division has been significantly more volatile than domestic equity. While the 1-year and 2-year returns for alternative investments were 19.7% and 19.1%, the 5-year return is only 7.1%; we believe that there that the reason for this is that the AIM program gained importance starting 1997 when the Policy and Investment Subcommittees set definite investment goals and strategies. Due to the J-Curve effect, whereby initial returns on private equity are negative, the performance of this fund in the 5-year period has been abysmal. AIM is currently one of the top performers of CalPERS and is expected to be a major source of revenue for the pension fund; the investment committee has considerably increased its investments in alternatives in the last few years and will continue to do so. to CalPERS AIM Fud Review….

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