CalSTRS commits $1.3 bln to private equity in first half

  • Large buyouts, technology co-investments dominate CalSTRS’ first half
  • Advent, Apax, Ares among largest commitments
  • $193.4 bln pension expands co-investment program by $83 mln

California State Teachers’ Retirement System committed around $1.3 billion to private equity in the first half, according to a report published in advance of its Sept. 14 meeting.

The $193.4 billion retirement system’s first-half commitments included five co-investments totaling around $83 million, more than half of which went to deals in technology companies, the report shows.

Co-investments represented 5 percent of its PE portfolio’s total investment exposure as of March 31, CalSTRS documents show. CalSTRS’s co-investment holdings include deals with Blackstone Group’s credit arm, GSO Capital Partners, as well as TPG CapitalCarlyle Group and CVC Capital Partners.

Despite being a low-cost alternative to traditional fund commitments, which typically come with hefty management fees, co-investments have underperformed fund investments for CalSTRS in the long-term. The pension’s co-investment portfolio has returned 8 percent since inception, compared with 13.3 percent for funds.

The co-investment program suffered some early losses, contributing to the lower returns, though their recent performance outperformed funds by wide margin (see CalSTRS performance chart).

The rest of CalSTRS’s first-half commitments went to fund investments, including $300 million each for Ares Management’s fifth corporate opportunities fund and Apax International’s ninth flagship fund.

CalSTRS also allocated $250 million to Thoma Bravo’s 12th fund, which is targeting $7 billion for tech-sector buyouts, and $150 million to Advent International’s $13 billion mega-fund.

In addition to its large buyout commitments, the system pledged $60 million across a pair of GGV Capital venture-capital funds, GGV Capital VI and GGV Capital VI Plus, and $75 million to Tenex Capital Partners II, a middle-market buyout fund.

CalSTRS valued its PE portfolio at $16.1 billion as of July 31. The retirement system held 8.3 percent of its assets in PE, short of its 9 percent allocation target.

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