CalSTRS cranks up PE pace as multiples rise

  • $186 bln pension commits 35 pct more to PE in 2015
  • Total commitments approach $4 bln
  • Blackstone, Coller among large commitments

California State Teachers’ Retirement System committed more than $3.9 billion to private equity funds and co-investments in 2015, more than 35 percent above the total it allocated to the asset class in 2014.

CalStrs’ rapid deployment of capital into private equity occurred as entry price multiples swelled to 10.3x Ebitda by the end of the third quarter, marking an all-time high for the industry, according to a report prepared for the system from consultant Meketa Investment Group.

Last year, CalStrs’ investment plan noted that the pension would have to make “hard choices to avoid being swept along by the increasing momentum of the fundraising cycle.”

In an email, spokeswoman Michelle Mussuto wrote: “CalSTRS continues to evaluate investments in the context of current market conditions while being sensitive to price and the quality of the opportunities it chooses to pursue.

“It is also important to recognize that a fund is generally invested over three to five years, so it is not correct to assume the current price environment will prevail throughout the investment period of funds currently in the market.”

General partners returned more capital to CalStrs than they called each year since 2011, which presents a challenge for the system and other limited partners to maintain their exposure to the asset class, Meketa wrote. As distributions come back to limited partners, their exposure to the asset class falls.

The private equity program’s cash flows netted a combined $3.5 billion in the second and third quarters, according to Meketa. CalStrs had a 9.3 percent allocation to the asset class as of March 31, almost 4 percentage points short of its 13 percent target.

That said, “anecdotal evidence indicates that, during the first half of 2015, distributions exceeded contributions as well, but slowed down in the second half of 2015,” Meketa wrote.

“As a result of slower market conditions, private market transaction activity is likely to decline. The pace of limited partner capital calls and distributions would follow suit.”

The $186.8 billion retirement system will have a lot of capital to call.

CalStrs allocated the $3.9 billion across 26 funds and six co-investments, which accounted for roughly 3 percent ($114 million) of its total commitments. Fund commitments included flagship funds managed by Blackstone GroupColler Capital and Summit Partners (see CalStrs Completed Investments – 2015).

CalStrs’s private equity allocation includes its commitments to venture capital, private debt funds and growth equity funds. Some 62.5 percent of the retirement system’s exposure to the asset class is through buyout funds. Those investments netted a 12.1 percent return since inception as of September 30, 2015.

Growth equity, which CalStrs refers to as “equity expansion,” has been the portfolio’s top performing sub-asset class since inception with a 21.6 percent net return. Venture capital funds netted 16.7 percent.

CalStrs valued its private equity portfolio at $18.2 billion as of Sept. 30, according to the report. The portfolio includes 354 active investments.

Action Item: To read Meketa’s report for CalStrs, visit