CalSTRS Commits $506 Million, Half To Asia Funds

Pension: California State Teachers’ Retirement System

Overall Assets: $152 Billion (Feb. 29, 2012)

Private Equity Assets: $21.4 Billion

Private Equity Allocation: 14%

Private Equity Policy Target Allocation: 12%

Chief Investment Officer: Christopher J. Ailman

Asia investments figured prominently among the private equity commitments made by the $152 billion California State Teachers’ Retirement System during the fourth quarter of 2011, according to a recently released investment report.

The pension, which oversees the country’s second-largest private equity program with $21.4 billion in invested capital, committed $506 million to the asset class in the final three months of last year, including $240 million destined for Asia.

The largest commitment was $125 million to PAG Capital’s PAG Asia I LP, a fund with a $1.7 billion target. The commitment starts a new relationship for CalSTRS with the firm, formerly known as the Pacific Alliance Group. The fund, led by former TPG Capital senior partner Weijian Shan, will make buyout and minority investments in Asia, with a particular focus on greater China and the retail, insurance and hotel industries.

The pension also made a $75 million commitment to Hony Capital’s Hony Capital Fund V LP, which recently closed with $2.6 billion in total commitments, the largest fund ever raised by a China-based firm. The fund will be invested in mid-market buyouts and growth capital opportunities in Asia. CalSTRS previously invested with the firm.

CalSTRS’s third Asian investment during the fourth quarter was a $40 million co-investment, sponsored by Bain Capital, in Wing Holdings, a leading restaurant operator in Asia.

Private equity investments in European debt also figured prominently in CalSTRS plans. The pension committed $75 million to Oaktree Capital Management’s Oaktree European Principal Fund III LP. The fund, which has a $3.9 billion target, aims to make debt and equity investments in distressed European companies. The pension also committed $50 million to TPG Capital’s TPG Opportunities Partners II LP, a fund that will focus on non-performing loans, distressed-for-control and special situation; a major portion of the fund will be invested in Europe.

The pension also made plans to invest in the energy sector, committing $50 million to Energy Capital Partners’s EnCap Energy Capital VIII Co-Investors fund. The State of Wisconsin Investment Board has also invested in this co-investment vehicle, which will invest in energy-related buyouts. Another commitment, to ACON Equity Partners ACON Equity Partners III LP, also has a large energy component. The fund invests in energy companies as well as companies that serve the U.S. Hispanic population.

Overall, CalSTRS has actually been reducing its private equity holdings, which at 14 percent was more than 2 percentage points above its 12 percent target allocation. In 2011, CalSTRS committed just over $2 billion to private equity, but that total was nearly $2 billion less than the $3.9 billion that the pension received back in private equity distributions during 2011, according to the investment report.