A $300 billion institution is about to make a move that will send chills down all of private equity's spine

Henry kravis kkrREUTERS/Shannon StapletonHenry Kravis of Kohlberg Kravis Roberts & Co. waits to speak for an interview in New York, April 3, 2012.

First they came for the hedge funds.

And now it’s private equity’s turn.

The Wall Street Journal reports that on June 15th Calpers, The California Public Employees’ Retirement System, will slice the number of private equity firms and real estate funds in half.

This is a huge deal.

With over $US300 billion under management Calpers is the largest public pension fund in the country, and when it makes a move, other institutional investors follow. Last September it divested itself entirely from hedge funds arguing that the fees it was paying were too much for the returns hedge funds were generating.

A Calpers representative said the fund was returning to “back to basics” investing. Pension funds in New Jersey and Pennsylvania are watching that very closely.

What Calpers wants to do is get rid of private equity investors who aren’t producing adequate returns and give more money to stronger money managers. That goes for real estate funds too (which, by the way, are increasingly run by private equity firms).

Right now the pension allocates to 212 investment managers — that number’s to be cut to about 100. Big name firms like KKR, Carlyle and Blackstone could all be on the chopping block.

The winners of this culling will get more Calpers money, the losers will learn a lesson about mediocrity on Wall Street — the lesson being that you can only get away with it for so long.

For the full story head to the Wall Street Journal>

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