CalPERS CIO hire signals an ‘all-in’ on private markets

It is still unclear whether a bigger push into private equity means CalPERS will get back into venture capital, after largely abandoning the asset class in the early 2000s.

California Public Employees’ Retirement System’s hiring of Nicole Musicco as CIO is significant for private equity, as Musicco joins the system after a career working in the asset class, including in helping build up a private markets direct investing program at a large institution.

The move is being viewed by insiders as a signal that CalPERS is “all-in” on private equity. This is not a surprise: the system has been public about its plans to grow its exposure to private equity by billions of dollars over the next few years through funds and co-investments.

The private equity-focused strategy from CalPERS is important because the system is viewed as a bellwether for the industry. Its moves are watched closely and often signal shifts in how other limited partners approach the asset class.

CalPERS has committed to growing its private equity program over the next few years. Late last year it jacked its allocation target to 13 percent of total assets, from 8 percent. The system also will add up to 5 percent debt onto the portfolio for greater spending power in a bid to juice returns.

The VC industry will watch for any sign that Musicco wants to get CalPERS back into venture, which the behemoth pension fund largely abandoned in the early 2000s. Her predecessor, Ben Meng, said in late 2019 that CalPERS was “trying to find ways to … get venture capital investment back in our portfolio.” But Meng departed abruptly in August 2020 and there has been no talk about VC since then.

CalPERS soured on VC due to poor returns and the inability to access the best funds. In an interview with VCJ sister publication Buyouts in August 2012, CalPERS then-CIO Joe Dear said: “We expect venture capital to move from about 7 percent of our private equity portfolio to 1 percent. That essentially means that we’ll do venture capital on a strictly opportunistic basis.”

CalPERS, with $500 billion in assets under management, committed $12.3 billion to private equity last year, growing its actual allocation to around 10 percent at year-end. It plans to continue its aggressive pace this year.

Bringing on a leader with a history of private equity experience is no coincidence, according to Megan White, a spokesperson for CalPERS.

“Her PE experience and our investment strategy, which includes increasing the allocation to PE and focusing on increasing coinvestments, make her [an] excellent choice for our next CIO,” White said.

Musicco joins from RedBird Capital Partners, where she led the firm’s Canadian business. Before, she managed the private markets investment program at the Investment Management Corp of Ontario. She also worked for 16 years at Ontario Teachers’ Pension Plan, leading private and public equity investment teams.

Musicco’s experience at IMCO could be advantageous to what CalPERS has contemplated for its private markets investing. The system is working to shrink its number of commitments, including through the use of a massive secondary sale currently on the market, affiliate publication Buyouts previously reported.

Instead, the system is eyeing fewer but deeper relationships with select managers that would include commitments to funds and access to coinvesting or even building separately managed accounts.

The system also has contemplated moving its private markets operations more in-house, as opposed to working exclusively through external managers. This is an area for which Musicco brings experience. She helped build out IMCO’s private markets operations, which included expanding direct investing capabilities, Buyouts previously reported.

IMCO launched in 2016 to invest Ontario public sector fund assets, overseeing assets of Ontario Pension Board, Provincial Judges’ Pension Board, WISE Trust and Workplace Safety and Insurance Board. Through growth in direct and fund investing, as well as rapid development of in-house staff and resources, IMCO aimed to reach C$6 billion or more in portfolio assets by 2025, Buyouts reported.

CalPERS plans for in-house, which was much of the focus in 2018, are unclear after they faded out a bit in the pandemic. The system believed it could achieve significant cost savings by tapping its own internal expertise in private equity to make direct investments, though the dealmaking skill set is different from that of managing money for a large institution, sources have told Buyouts in past interviews.

Lawrence Aragon contributed to this story