Calpers, the largest defined benefit public pension fund in the US, is set to increase its allocation to private markets this year – including private debt.

The $483bn (£380bn) fund is increasing total private market allocations from 33 per cent to 40 per cent of its portfolio this year, after a proposal was agreed by the board.

Private equity will increase from a target of 13 per cent to 17 per cent, while private debt will increase from five per cent to eight per cent.

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Calpers said that it continues to progress with the private asset strategy it begun in 2022, as it diversifies away from public markets.

It is reducing its allocation to stock markets to 37 per cent from 42 per cent, and fixed income will fall to 28 per cent from 30 per cent.

“Strong and ongoing growth in private equity returns is behind this measured and appropriate increase,” said Calpers Trustee David Miller, chair of the investment committee. “Market conditions are evolving, and the investment team needs latitude to deploy capital intelligently to keep the fund on track for sustainable returns.”

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Analysis by the pension fund found that private equity’s 20-year annualised returns stand at 12.3 per cent, making it the top performing asset class of the fund over that period. The one-year return for private debt, which it established as a separate asset class in 2022, was 13.3 per cent as of the end of 2023.

Calpers’ fund allocations are evaluated every four years.

Many US pension funds are increasing their allocations to private markets, attracted by steady sources of income and high yields.

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