CA, IL Pension Seek Managers

The search is on for a fund-of funds manager at the California State Teachers’ Retirement System (CalSTRS). Last week the pension fund issued an RFP asking qualified groups to submit proposals for a $100 million mandate to run its New and Next Generation Managers Program.

In late February the Sacramento-based pension fund set aside $100 million to invest in private equity funds managed by young and emerging partnerships (See “CalSTRS Readies for Next Generation,” PE Week, 3/3/03). Although CalSTRS currently manages a $4.6 billion private equity portfolio, accounting for 4% of the pension fund’s $95 billion portfolio, it plans to double the value of that portfolio and commit $11 billion to the asset class by 2006. So it’s trying to get in early with fund managers that may become the next-generation of top-tier investors. It’s planning to invest in funds managed by new partnerships spun out of bellwether firms, young firms raising their second fund, or experienced general partners raising their first institutional fund.

CalSTRS will select one or two firms to build, manage and liquidate the emerging managers program and have full discretion over the $100 million portfolio.

The RFP’s closing date is July 7.

In similar news, the $570 million Chicago (IL) Park Employees A&B Fund is at the beginning stages of a search for a private equity fund-of-funds manager to oversee a 5% or $28 million allocation to the sector.

Consultant Ennis Knupp & Associates is expected to begin to begin the search this week. Interested managers are being advised to contact Ennis Knupp directly.

A decision on exactly which type of private equity to invest in is still being discussed by the fund’s board, which understands that it has committed to “a very aggressive investment category,” says Joseph Fratto, the fund’s executive director. The strengths and weaknesses of the private equity fund-of-funds manager candidates presented to the board will play a key role in bringing the board to a decision concerning whether or not the private equity investment will be venture capital, hedge funds, mezzanine funding, or some other private equity sub-category.

The private equity search is a direct result of a recent asset liability study of the plan by Ennis Knupp. The study spurred a 5% target increase in exposure to international equity, but the board has no intention at this time to search for a new international equity manager, Fratto says, adding that all the changes to the plan’s allocation were based on a desire by the board to see. “diversification within traditional categories.”