Calpers Makes $1 Billion Bet on Small Funds as New CIO Reshapes Pension

The California Public Employees’ Retirement System is making a $1 billion wager that small private equity firms without the heft of the biggest buyout institutions can boost the pension giant’s returns and clout.

Calpers, the largest public pension fund in the US, will invest $500 million each with TPG Inc. and GCM Grosvenor to help launch funds backing up-and-coming private equity firms, pension officials said. Those funds could take stakes in smaller investment managers and direct money to those run by women and minorities, as well as offer seed funding to newer firms.

Calpers Chief Investment Officer Nicole Musicco says Calpers’s latest investments aren’t related to affirmative action or politics. Instead, she hopes that by forging ties with private equity managers while they’re young, Calpers will become one of the first calls made when choice deals arise.

“It’s not about a diversity play,” she said in an interview. “It’s about generating alpha in a more thoughtful way, and leveraging partners we will work hand in glove with.”

Musicco, 48, has made a push for the $449 billion pension fund to invest directly in companies and bypass private equity giants. After joining Calpers in February 2022, Musicco began mapping out a strategy that will gradually curb its reliance on the biggest private equity funds and reduce fees over time.

Calpers is the first major investor in TPG’s new Next fund and Grosvenor’s new Elevate strategy. The fund could do more strategic partnerships with managers in other investment areas, she said, and it will help “to have a smart friend at the table.”