How do you determine establishing a direct relationship or fund of funds relationship with an Emerging Manager?

Adding a direct relationship involves portfolio construction and manager assessment reviews following CalPERS standard processes. Fund of funds mandates are managed by external managers who generally have discretion over how capital is deployed. In Private Equity, emerging managers considered for a direct relationship are defined as managers raising their first or second institutional fund. An institutional fund is a fund which is being raised by a proven team with a demonstrable track record to which at least three institutional investors have made a commitment.

Transitioning Emerging Managers to established managers was a goal mentioned. In addition to performance, what criteria are important to CalPERS in graduating its Emerging Managers from the emerging segment of CalPERS portfolio to the established manager component of the portfolio? Is there a process in place for emerging managers to transition to established manager with the CalPERS portfolio?

CalPERS Emerging Manager Five-Year Plan includes a work stream to establish criteria to evaluate transitioning emerging managers for direct investment mandates. This approach will build upon demonstrated performance and capabilities; active management of risks associated with scaling up the size of the investment mandate; and provides managers a more clear understanding of what they need to do to compete for additional capital. The plan can be found at the December 3, 2012 CalPERS Emerging and Diverse Manager Forum event website .

 All managers are reviewed using the same process. Factors considered in the process include alignment of interest, governance, performance, portfolio fit, team cohesion and value creation. Any manager is welcome to submit their proposal to CalPERS at any time where they will be evaluated on their individual merits.

For a pension fund of CalPERS size, how does only a $100m new allocation to Private Equity’s Emerging Manager program demonstrate a real commitment to EM’s?

Is there a plan in Private Equity to bridge GPs from $200m funds to $400m funds? What is CalPERS saying with the $100m commitment to EMs in PE? That is not much compared to CalPERS total fund size.

CalPERS has over $10 billion committed to emerging managers of which more than $1.2 billion is committed by the Private Equity asset class. The current $100 million commitment to the Domestic Emerging Managers Program in Private Equity is a continuation of CalPERS historical commitment to this space. This is also CalPERS continued commitment to Emerging Managers while the Private Equity program portfolio undergoes significant restructuring. While there is no plan to bridge managers from specific fund sizes, each manager is evaluated on its own merits. The current Emerging Manager Program, like all Private Equity investment programs, is monitored and evaluated by Staff over time.

If CalPERS is focused on reducing their number of managers and increasing the size of their commitments, doesn’t that by definition make it hard for CalPERS to support emerging managers who are typically smaller funds?

How do you reconcile your desire to reduce your number of managers with the reality that EM’s are by definition small?

If CalPERS is reducing the number of PE firms, how do EM firms realistically stand a chance given the 750 firms already in the program?

How do you balance CalPERS commitment to reduce the number of managers and increase commitment sizes and amounts with the fact that emerging managers tend to raise relatively small first time funds (specifically towards private equity)?

Does CalPERS use Fund of Funds to allocate capital to Emerging Managers?

Yes, CalPERS created the Domestic Emerging Manager Private Equity Program and selected fund of funds advisor Credit Suisse Fund Investment Group (CFIG) for a mandate with $100 million in total commitments from CalPERS. The Program will look at smaller funds based in the US.  CFIG works closely with CalPERS staff on the mandate, with CFIG continually providing perspective on the emerging manager space.

VC firms of $20-50m (micro VC) is where some of the best returns are seen. The Metrics:  track record, team size requirements at CalPERS are somewhat in conflict with those of Micro VC. Is this an asset class CalPERS is interested in?

Please talk about CalPERS and early-stages venture capital funds (EM perspective).

How does Venture Capital fit into the broader Private Equity picture for CalPERS? How much of PE allocation is devoted to VC now and looking forward? What challenges do you see with VC asset class today specifically (versus broader PE)?

CalPERS does not favor VC investments for direct investment. As mentioned above, CFIG does have an allocation for emerging VC funds. Currently venture capital makes up 7 percent of the Private Equity portfolio. Over time, that exposure will decrease to a target of 1 percent. Given the size of the CalPERS Private Equity program and the lack of scalability in the Venture industry it is difficult for CalPERS to maintain a meaningful exposure to Venture.

Every investment manager with whom I’ve spoken about doing business with CalPERS has warned me that I’ll need to hire an additional full time investor relations manager just to handle CalPERS communication and reports needs. Why is this? Shouldn’t all LP’s be satisfied with somewhat standardized communication and reporting?

Good communication and transparency are qualities that CalPERS looks for in every manager. CalPERS PE program has been an early adopter and promoter of the Institutional Limited Partners Association (ILPA) Standardized Reporting package. CalPERS strives to be a leader and innovator in improving communication for all Limited Partners.

I noticed on CalPERS website that one fund manager in particular had well over $500m in CalPERS capital. How does one fund company secure so much of CalPERS’ capital, and what do other funds need to do to follow suit?

Factors considered in the process reviewing and hiring managers include alignment of interest, governance, performance, portfolio fit, team cohesion and value creation. Any manager is welcome to submit their proposal to CalPERS at any time where they will be evaluated on their individual merits. Please also see answer 3 above. 

Will CalPERS consider an investment into an emerging manager fund that contains a hybrid of asset classes (i.e. one fund with focus on Real Estate and Private Equity in a specific common sector)?

CalPERS has separate Real Estate and Private Equity programs. Any manager is welcome to submit their proposal to CalPERS at any time.

What is the role of your consultants via Emerging Managers?

The consultants for the Private Equity program do not play a role in the Emerging Manager program.

Has CalPERS considered seed investments into the GP in conjunction with a lead investment as a mean to increase returns and help stabilize the Emerging Manager — i.e. ownership in the manager?

Making seed investments into Emerging Manager GPs is not part of the Emerging Manager strategy.

What is the process for making an investment decision in an emerging fund post-portal?

All proposals, whether emerging manager or established funds, go through the same confidential due diligence process post receipt of the investment proposal.

Where does a third- or fourth-time fund fit if it is small by design (e.g. <$250m in assets)? Are these funds still considered emerging manager funds?

These funds would not meet the definition of Emerging Managers.&#160; Such a fund is evaluated on its own merits.&#160; Please see answer #2 above.

Once a manager receives an email from CalPERS stating to contact CalPERS outside program managers, do you suggest the manager use this email to engage in dialogue with the outside program manager?

If an emerging manager is in new fund formation phase and will be seeking to submit an investment proposal from CalPERS, is there a liaison that can be consulted at CalPERS during the fund formation phase to avoid any fatal formation errors (that would prevent an investment)?

CalPERS does not have a liaison to consult with to help managers with their fund formation process.&#160;CalPERS suggests going to the proposal submission page and reading all the information contained in the External User Manual for an overview of the investment submission process.

Does CalPERS have sufficient resources to quickly review proposals, conduct due diligence and invest in qualified emerging/diverse managers as timing/speed may be very important to GP or Funds?

CalPERS has sufficient staff to review all proposals and we strive to reply to proposals in a timely manner. Please be informed that it can take up to 6 months to complete the due diligence analysis for a new manager. If you have any questions about your proposal, please&#160;email us .

Explain mixed performance of EM Fund of Funds.

Mixed performance of Emerging Manager funds means there have been returns that have been very good, very poor, and in-between.&#160;A work stream in CalPERS Emerging Manager Five-Year Plan is establishing performance, cost and diversity of existing emerging manager portfolios. We expect to report emerging and diverse manager data to the Investment Committee and then post the report on CalPERS website in coming months.

Regarding PE, discuss the relationship between CalPERS and their external manager. Who is a decision maker, who is to approach, how much money do they have for our area?

CalPERS has hired the Credit Suisse Fund Investment Group (CFIG) to manage the Emerging Domestic Private Equity Manager Fund of Funds.&#160;The Program was launched with $100 million in total commitments from CalPERS.&#160;CFIG employs an open door policy and is welcoming of all emerging managers.&#160;CFIG has complete discretion over the deployment of the capital.&#160;You can contact CFIG&#160;directly via&#160;email .

Is there a preference to put EM’s into: fund of funds, fund, and separate account?

Is the commitment levels of $100m to PE capped? What is the track record of firms graduating from the EM program to the non-emerging pool of capital?

Yes, please see answer #3 above. There are a limited number of examples of Emerging Managers graduating from the fund of funds to direct relationships.&#160;All funds, graduates or otherwise, are evaluated using the same criteria.&#160;Please see answer #2 above.