U.S. pension funds contributed to the record $1.2 trillion that private-equity firms raised this decade. Three of the biggest investors, state pensions in California, Oregon and Washington, plunked down at least $53.8 billion. So far, they only have dwindling paper profits and a lot less cash to show the millions of policemen, teachers and other civil servants in their retirement plans.
Calpers ponied up $652 million in capital calls to The Carlyle Group when the markets imploded last fall. It was either that or try to dump their stake in the private equity underwriter (PEU).
University endowments and philanthropic foundations hurt by the worst economic crisis since the Great Depression have struggled to sell their stakes in private-equity funds to raise cash. Investors including Harvard University, in Cambridge, Massachusetts, planned to raise more than $100 billion through so-called secondary sales of limited partnership interests, some at discounts of at least 50 percent, people familiar with the effort said last year.Financial "Masters of the Universe" Goldman Sachs started a fund to buy discounted private equity investments.
Rubenstein, of Washington-based Carlyle, acknowledges that the buyout industry faces tough questions.
“People have a lot of money in the ground and today it’s probably not worth what they had intended, but a turn-around in valuations is now beginning,” Rubenstein said in an interview. “You’ll probably see general partners and limited partners focused more on multiples of equity rather than just IRRs.”
Calpers had to cover their doubling down with a policy change:
Calpers in June raised its target commitment to private equity to 14 percent of assets from 10 percent.How will their PEU bet turn out?