Tuesday, May 31, 2011

Réal Desrochers to Head CalPERS Private Equity

Marc Lifsher of the LA Times reports, CalPERS names new private equity investment executive:

The California Public Employees' Retirement System, the country's largest public pension fund, has named an investment executive to run its $49-billion private equity investment portfolio.

Real Desrochers, who spent a decade doing a similar job for the California State Teachers' Retirement System, replaces Leon Shahinian, who resigned in August after being caught in a spreading CalPERS corruption scandal.

Private equity generated annual returns of more than 17% for the teachers' fund under Desrochers' leadership in the decade before 2009, CalPERS Chief Investment Officer Joseph Dear said.

Earlier in his career, Desrochers worked for Canada's largest pension fund, Caisse de Depot of Quebec. After leaving CalSTRS, he advised a number of investors, including Blackstone Capital, J.H. Whitney, Texas Pacific Group, Permira and China Renaissance Industries. He also was chief investment officer for the Saudi Arabian Investment Co.

Desrochers joins CalPERS as the country's largest public pension fund, with $236 billion in assets, is clawing its way back from losing $100 billion between late 2007 and early 2009. The fund reached an all-time high of $260 billion in October 2007 before the Great Recession hit.

CalPERS currently faces more than financial difficulties. The 2,300-person agency, which serves 1.6 million state and local workers, their families and retirees, also is facing a morale crisis as it seeks to deal with a so-called pay-to-play scandal that has touched three former board members, a former chief executive and a number of outside investment consultants and managers.

Shahinian was mentioned in a 2010 state attorney general's lawsuit for taking gifts of luxury travel to New York City to attend a charitable dinner honoring the chairman of Apollo Global Management, Leon Black.

Alfred J.R. Villalobos, a former CalPERS board member turned middleman dealmaker, picked up most of Shahinian's tab on behalf of his client, Apollo. The gifts to Shahinian were not reported as required by state law.

Shahinian later recommended that CalPERS purchase a 9% stake in Apollo.

Neither Shahinian nor Black have been charged with any wrongdoing.

Let me take this opportunity to publicly congratulate Réal. I had the immense pleasure of meeting him in 2005 when I was working at PSP and we stayed in touch ever since. CalPERS is lucky to have him on board and if you have any doubts, read what CalSTRS CIO, Chris Ailman, said about Réal when he retired from there in 2009:
"He is truly a global industry leader in private equity," Ailman wrote in the email. "During his tenure, our private equity portfolio has produced the second highest performance in the entire US, better than endowments, public pensions, and corporate [pensions]. We will miss Réal, he leaves very big shoes to fill behind him."

Private equity progression

As of the end of March 2008, the pension's private equity programme has averaged a 19.1 percent return since its launch in 1989. For the last fiscal year on record, ended 30 June 2008, the private equity programme was one of the only three asset classes to give the pension positive returns amid what CalSTRS termed "a troubled market". The private equity programme beat its 4.9 percent benchmark with an 11.6 percent growth. The preceding two fiscal years, private equity returned 27.6 percent and 32 percent, respectively.

"If we didn't cap the allocation to alternative assets, the whole fund would be invested in there because of the returns," Desrochers told sister magazine Private Equity International in an August 2007 interview.

Like many US pensions in the past decade, CalSTRS has significantly expanded its private equity programme. Under Desrochers' watch, the programme moved beyond making investments solely in North America to become a global investor. Other noteworthy policy changes have included adding the ability to both buy and sell fund interests on the secondary market; to co-invest globally; and to purchase minority stakes in private equity firms' management companies.

Réal is a giant in private equity. He understands the landscape and the challenges that lie ahead. He is also a warm and caring individual who can charm you with his manners and conversational skills. I have often confided in him and in our last email exchange he told me something ''big'' was up. It's not big, it's huge, and I'm confident he'll do an outstanding job. I am happy for him and his wife Jo whom he loves deeply. I wish him and the CalPERS PE team much success as they forge ahead under his leadership.

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