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Photo by Max Whittaker/Getty Images

There are only three things in life you can count on: Death, taxes and CalPERS doing strange stuff with private equity.

Why it matters: CalPERS is the California Public Employees' Retirement System, which is the country's largest public pension with around $350 billion in assets under management. Of that, around $25 billion is invested in private equity.

Over the years, CalPERS management has treated its private equity strategy like a toddler treats a Netflix queue. Let's try this. No, let's try that. I don't even know what that is, but it sure looks cool.

The latest plan is to create a quasi-independent organization called CalPERS Direct:

CalPERS Direct would be governed by a separate, independent board to advise on allocation and longer-term capital market perspectives. It would consist of two separate funds. One would focus on late-stage investments in technology, life sciences, and healthcare, and the other on long-term investments in established companies. These would operate alongside CalPERS' existing private equity structure that typically invests in co-mingled private equity funds.  

The mastermind here is CalPERS chief investment officer Ted Eliopoulos, who resigned just in time to not oversee its execution.

If that's not a big enough red flag, here are more:

  1. The comp is supposed to be Canada's big public pensions, which have spent the past decade building direct PE investing platforms and deemphasizing indirect investments with outside managers. But those Canadian systems generally maintain oversight rather than creating independent boards. Or, put more simply: CalPERS is creating an indirect model for direct investing, which seems to largely defeat the point.
  2. If a goal is to lower fees, it might be tough given that CalPERS Direct will pay "market rates" to its investment professionals (which also could create grumbles among those dozens of PE staffers still on the CalPERS payroll at below-market rates).
  3. If a goal is to put more money to work, this could be easily accomplished by reigniting commitments to third-party funds — something CalPERS used to do tons of but then slowed way down in the name of negotiating better deals and simplifying the portfolio. I bet SoftBank Vision Fund II could handle a big slug.
  4. If the goal is to increase transparency, then why create a separate governance structure?
  5. Late-stage and Buffett-style strategies are the two hottest trends right now in private equity, which likely means it's a questionable time to launch new programs that won't be ready until the first half of 2019. In fact, CalPERS has a distressing private equity history of diving in near market tops and exiting near market bottoms (see: Capital, Venture).
  6. There was talk last fall about CalPERS outsourcing all or part of its private equity program to a firm like BlackRock. A spokesman tells me that such discussions are "not completely off the table, but on a separate track." Sounds like CalPERS wants a bit of wiggle room in case the new plan falters.

Bottom line: It's certainly possible that CalPERS Direct will improve returns. But stronger odds are that it won't, and that CalPERS will again shift strategy before any of us — or its 1.9 million members — know the ultimate results of what is supposed to be a long-term play.

Go deeper

China's crypto throwdown

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China's latest move to ban cryptocurrency shows how tough it will be for the technology to deliver on its backers' vision of disruptive, decentralized change.

The big picture: Control of the currency is a foundation of sovereignty, and governments don't plan on losing that control even as money inevitably turns digital.

D.C. homicides fueled by rundown properties

Illustration: Sarah Grillo/Axios

Angela Washington was the last line of defense for residents at the Oak Hill Apartments in Southeast besieged by gun violence. Then, on the evening of Sept. 21, the 41-year-old special police officer was shot to death.

Why it matters: The District’s spike in gun violence is being linked partly to rundown properties that city officials and residents say have become magnets for criminal activity.

Biden's reengineer-America moment

Illustration: Sarah Grillo/Axios

The Senate's bipartisan $1.2 trillion infrastructure bill and President Biden's $3.5 trillion spending package could live or die this week — and take Democrats' fortunes with them. But all the minute-by-minute political drama obscures how much America could change if even a fraction of it passes.

The big picture: Anything short of total failure could have a transformative impact on day-to-day life — from how we move around to our access to the internet, paid family leave and child care, health care and college.