CalPERS backs local funds

The California Public Employees’ Retirement System (CalPERS) has committed $400 million to funds-of-funds manager Centinela Capital Partners and $500 million to Sacramento Private Equity Partners.

Both of the investments, announced last month, are part of the pension fund’s California Initiative, which was launched in 2001 as an effort to reach a more diversified pool of general partners and to invest capital in underserved urban and rural areas in California. A few weeks prior, CalPERS announced a $500 million commitment to Hamilton Lane as part of the same initiative.

Centinela will invest with private equity firms active in leveraged buyouts, expansion capital and venture capital. The firm expects to begin investing by the end of the year and to commit capital over the next four years. Centinela operates out of New York and California and is the brainchild of Cesar Baez, who most recently oversaw alternative investments for Deutsche Bank Asset Management. He is also the former head of alternative investments for the State of New Jersey Division of Investments.

Similarly, Sacramento Private Equity Partners is a fund-of-funds focused on venture and small middle-market private equity funds. The Menlo Park, Calif.-based Oak Hill Investment Management will manage the fund.

One of the concerns of the pension funds is that some of their mangers are all in the same deals.

Colin BlaydonprofessorTuck School of Business at Dartmouth College

Both commitments are part of the pension fund’s effort to access smaller funds, says Charles Valdes, chairman of CalPERS’ Investment Committee, in a prepared statement. “There’s a huge gap between the top tier and second tier performers and we have a particular need for a partner who can help us access smaller funds that can deliver upper quartile returns,” he says.

Colin Blaydon, a professor at the Tuck School of Business at Dartmouth College, notes that public pension funds have developed an appetite for new managers in their quest for diversification. Blaydon says that part of this push for diversification comes from the current trends of buyout firms involved in club deals and raising mega-funds.

“With so many funds going into so many of the same deals, one of the concerns of the pension funds is that some of their mangers are all in the same deals and they’re not at the portfolio level getting the diversification they’re seeking,”he says. “They’re going to be looking at how they can get diversification. That’s what they’re looking for new managers to bring to them.”