Firms & Funds

CalSTRS commits $1.3 bln to private equity in first half

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CalSTRS, California State Teachers Retirement System, pension fund, private equity
Regional coordinator Charles Evans (C) picks up children from school to take them to an after-school program at South Los Angeles Learning Center in Los Angeles, California March 16, 2011. The center is run by School on Wheels, which uses volunteers to tutor homeless children in shelters, parks, motels, and two centers. There has been a surge in the number of homeless children in Los Angeles in the last five years, due to persistent unemployment and mounting foreclosures. Photo courtesy Reuters/Lucy Nicholson -RTR2JZUF
  • 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 Capital, Carlyle 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.

Action Item: To learn more about CalSTRS, visit www.calstrs.com