The largest public pension plan in the US is committed to private equity, according to its chief executive officer, Marcie Frost, even as the asset class has struggled to return cash to its investors amid a prolonged deal slump.

“We still have very strong conviction in private equity,” Frost, the CEO of the California Public Employees’ Retirement System, said in an interview with Bloomberg TV on Tuesday.

Private markets have become one of the pension fund’s best-performing asset classes over the past 20 years, Frost said. But there’s “wide dispersion” in private equity performance at the moment, she said, making it more imperative that Calpers find the “best managers” to invest with.

Many private equity funds have produced sluggish returns in recent years, as managers have struggled to exit investments through traditional sales as mergers and dealmaking has slowed.

Calpers’ private equity investments earned a 14.3% return for its latest fiscal year, as it has implemented a strategic overhaul that has focused on cheaper co-investments over allocations to funds. That trailed its public equity segment, which returned 16.8% over the same period.

The fund has reduced fees tied to private equity investments by 10% over the past two and a half years, Frost said, through strategies including co-investing in separately managed accounts.

Frost said Calpers’ “strong liquidity position” has allowed the pension fund to increase its allocation to private markets. Last year, Calpers boosted its target allocation to 17% for private equity and 8% for private credit, while paring exposure to publicly traded stocks and bonds.

“Many of our peers are not as liquidity fluid as we are; they’re a little more constrained,” Frost said. “We think that the allocation that we have in place works for us over the next four to six years.”

Written by: Isabella Farr @Bloomberg

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