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CalPERS unloads record $6 billion of private equity stakes at discount

Pension funds and endowments are among large institutions taking advantage of the rise of so-called secondary buyers — other deep-pocketed investors willing to take on older, unwanted private equity stakes that are typically hard to sell and value. These kinds of trades totaled $63 billion in 2021, a record high, according to Campbell Lutyens & Co.

Wall Street is bracing for a slowdown in trading private equity stakes. With markets in flux, some sellers are hesitant about striking deals at steep discounts.

The haircuts for various assets sold by CalPERS range from high single-digit percentages to about 20%, some of the people said.

In a move to make any discount less punitive, CalPERS opted to defer some payments beyond June 30, the last day of its fiscal year, people said. That allows CalPERS to continue collecting some of the cash generated by the investments. And by not taking all of the sale proceeds upfront, CalPERS can avoid a large balance of undeployed cash, which would drag down performance for the latest fiscal year.

CalPERS, like many public pension funds, doesn’t have all the assets needed to meet future promises to retired police, firefighters and other state workers. If the funds can’t meet their return benchmarks, it puts the onus on taxpayers to help fill the shortfall.

Lexington and Glendower took over a mixed bag of older funds that include buyout and growth strategies. The deal helps CalPERS break ties with some managers it invested with previously.

CalPERS, one of the earliest public pension funds to get into private equity, has seen its returns in the asset class trail peers over time as rivals crowded into buyout funds in search of higher returns.

Various CalPERS leaders have tried to remake the pension’s sprawling private equity portfolio, but some ran out of time or faced challenges getting support from others at the fund.

Ted Eliopoulos tried to slash the number of managers during his tenure as CIO from 2014 to 2018. Under Ms. Musicco’s predecessor, Ben Meng, CalPERS expanded co-investments, which are typically deals done alongside funds to help curb fees.

The pension fund has continued to ramp up co-investing, one of the people said.

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