Its private equity portfolio was up nearly 19% in 2003. But the California State Teachers’ Retirement System (CalSTRS) is slowly adjusting its investment strategy, as it moves out of international private equity, distressed debt and mezzanine funds and pours a larger percentage of its capital into venture and expansion-stage equity.
A semi-annual performance report prepared by the pension fund’s consultants, McKinsey & Co., was presented to the fund’s investment committee at its monthly meeting in Sacramento last week. It indicates that the pension fund’s $5.16 billion private equity portfolio is moving toward allocation targets outlined in an investment plan last July.
Its most recent investments reflect those changes. Since the fiscal year began in July, the pension fund has put $1.2 billion to work in the private equity markets, including another $150 million in new commitments in January (the latest month for which records are available).
In January, CalSTRS made a $100 million commitment to Onex Corp., a Toronto-based middle-market buyout fund targeted to top off at $1.65 billion. Buyout funds will comprise 55% of CalSTRS’ portfolio this year, according to its investment targets.
CalSTRS also made a $50 million commitment to Technology Crossover Ventures’ new $900 million early-stage venture capital fund, which closed in January. About 14% of CalSTRS’ private equity portfolio sits in venture capital funds. The pension fund wants to boost that up to a 20% total.
Equity expansion funds are also getting augmented. In the investment plan’s new exposure targets, as much as 10% of the portfolio will go to an equity expansion fund. They currently make up 7.2% of CalSTRS’ private equity portfolio.
At the same time, CalSTRS is decreasing its exposure to distressed debt funds, mezzanine and international private equity, which together make up slightly more than 24% of the portfolio.