On July 1 CalPERS ($589.54bn) drops fixed asset-class buckets for a total portfolio approach — lifting its PE target to 17% and adding a new 8% private-credit bucket — three weeks after the Financial Stability Board's first dedicated private-credit warning. CalPERS adopts TPA · The FSB warns on private credit · Pensions buy anyway. Full brief: https://www.universalassetowners.com
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Transcript
This is the Universal Asset Owners daily video brief for Wednesday, May twenty-seventh. Three things for the people who allocate long-horizon capital.
On July first, CalPERS — the largest US public pension, five hundred and ninety billion dollars — replaces fixed asset-class buckets with a total portfolio approach. Every investment now competes for capital against every other. And as it switches, it lifts its private-equity target to seventeen percent and stands up a new private-credit bucket targeting eight percent.
The timing is pointed. Three weeks ago the Financial Stability Board issued its first dedicated warning on private credit — a market worth up to two trillion dollars, where reported leverage of five to six times may be closer to seven once you adjust earnings. The regulator has now named the risk pensions are buying.
It hasn't slowed demand. The Washington State Investment Board doubled its private-credit target to three percent. Connecticut approved two point seven five billion dollars of new commitments. The risk the regulator describes and the demand these funds create are the same thing, seen from two chairs.
Here's the chart. Across the board, public pensions are raising their private-credit targets — Washington State to three percent, APG toward four, CalPERS to eight from a standing start — into the very market the FSB just flagged.
Our take: the total portfolio approach is the right tool and the wrong moment, at once. Dropping the buckets improves how a fund weighs trade-offs — but it removes the cap that stopped over-allocating to whatever's in vogue. The discipline now has to come from governance, not the model.
The full brief, the chart, and The Universal Owner podcast are at universalassetowners dot com. Back tomorrow.
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Produced and edited by the UAO editorial desk. Not investment advice.