CalSTRS co-investments show resilience as post-covid numbers roll in

The vast majority of the portfolio is still fund commitments, but the $262bn pension is planning to grow its co-investment strategy in the future.

California State Teachers’ Retirement System‘s still-nascent co-investment program outperformed its much larger fund investments program through March 31, according to a presentation from its private equity consultant.

Both types of vehicles saw a downturn in returns as the covid crisis wreaked havoc on the economy, but co-investments appeared more resilient, at least in the short term, Meketa Investment Group‘s report said.

As of March 31, fund investments returned -1.19 percent over one year, 7.28 percent over three years, and 7.94 percent over five years. Co-investments returned 0.72 percent over one year, 13.02 perecent over three years, and 10.50 percent over five years. The only time period where fund investments beat co-investments was over 10 years, where they outperformed 11.27 percent to 11.06 percent.

The overall CalSTRS PE program returned -0.74 percent over one year, 7.89 percent over three years, 8.35 percent over 5 years, and 11.39 percent over 10 years.

The CalSTRS co-investment program is still small. The full private equity portfolio was valued at $23.1 billion, with $42.7 billion in total exposure if unfunded commitments are included; 93 percent of it was in fund commitments. Only 7 percent was co-investments, but that was up from 5 percent in March.

Co-investment push

The $262 billion pension has made co-investments the primary private equity focus of its “Collaborative Model,” an initiative to bring more investment capacity in-house, and the program is expected to grow over time, the presentation said.

“The lion’s share of co-investment opportunities that the private equity team is going to see are going to be in the buyouts asset class, so that will tend towards a higher percentage of buyouts as that co-investment strategy is executed,” said Meketa’s John Haggerty at the pension’s investment committee meeting Wednesday.

Chief investment officer Christopher Ailman said earlier this year that the pension planned to add staff to the program. In 2019, it vowed to double its co-investment output.

In the first half of 2020, the pension made more than $700 million in co-investment commitments, included eight individual co-investments and three co-investment funds. That is less than it committed to them in the second half of 2019, likely reflecting the constrained deal flow in the early days of the coronavirus pandemic, but still a considerable amount.

The fund made almost $5 billion in total commitments over the same time period.


CalSTRS’ best-returning overall PE strategy over the short term was venture capital, which returned 6.59 percent over one year while still coming in beneath its benchmark. Buyouts returned -0.58 percent, which was actually over its benchmark.

The worst-performing strategy was “debt related” investments, which returned -9.46 percent as of March 31 and missed its benchmarks across all time periods. A final strategy, special mandates, returned -1.91 percent over one year.

Action Item: read Meketa’s presentation on CalSTRS’s private equity program here.