Reasons for the reduced outlook for private equity returns include an "unprecedented" $1.47 trillion in capital overhang in the private equity market - known as dry powder - which PE firms will use to invest in companies.  As PE firms are expected to invest the capital they raise, this could present a problem as PE firms compete for deals, increasing entry prices.

Another interesting point in the article is that Calpers has had negative cash flow for the five of the past seven years, which is leading to a shortfall forecast at $9.2 billion by fiscal 2032.  What's troubling is that this forecast is based on a 7.5% annualized return from Calpers' investments, when a prominent consultant has projected a more conservative 6.0% annual return rate.  If the 6% annual return rate is accurate, the shortfall could be much higher.

Link:
http://www.bloomberg.com/news/articles/2016-10-07/calpers-sees-next-headache-in-slowing-private-equity-cash-gusher

There's an interesting article posted today on Time.com titled "Why Pension Funds Are Hooked on Private Equity" which discusses the relationship between pension funds, as investors in the private equity asset class, and the funds themselves which can provide outsized returns to the pension funds.  The article also touches on the carried interest tax issue as well as how pension funds are underfunded which is driving the search for returns.  Here's the link:  http://business.time.com/2013/04/15/why-pension-funds-are-hooked-on-private-equity/

The Wall Street Journal's recent front page article "Pensions Bet Big With Private Equity" explores the approach used by Teacher Retirement System of Texas with respect to its allocation to private equity.  According to the article, the $114 billion fund has committed about 30 billion to private equity, or roughly a 26% allocation to private equity, giving it the highest allocation among the ten largest pension funds in the United States, where the average allocation is 21%.  The returns from private equity for the pension fund have been 7.4% , 4.8% and 15.6% over the past ten year, five year and three year periods, respectively.  The pension fund is 82% funded, compared to the average funding level of 76% among large pension fund nationally.


It's an interesting article, but I feel it could have been more interesting if it had included specific comparisons to California's CalPERS and CalSTRS plans.  Here's the link:  
http://online.wsj.com/article/SB10001424127887323485704578258242293295894.html