The California State Teachers’ Retirement System last week scaled back an ambitious plan that would have created an international private equity portfolio that reached from the Far East to Latin America.
Consulting firm McKinsey & Co. had recommended that CalSTRS add developed and undeveloped nations in the Middle East, Far East, Latin America and Eastern Europe to its investment program. Instead, the pension system added just Australia and Japan.
Overall, up to one-fourth of CalSTRS’ private equity portfolio will be invested internationally, according to the new alternative investment plan adopted by the $113 billion retirement system last month.
Currently, almost 18% of the retirement system’s $5.5 billion private equity portfolio, or $974 million, sits in international private equity funds. Its exposure, however, is limited to funds in Canada, the U.K. and Western Europe.
New markets may be added to the list over time, says Real Desrochers, CalSTRS’ director of alternative investments, in a report to the fund’s investment committee.
Cambridge Associates has been tapped to develop the pension plan’s Australian and Japanese portfolios. It also oversees the fund’s investments in the United States and Canada.
CalSTRS has been bulking up its international private equity portfolio for the last several months. In March the plan made a $65 million commitment to The Blackstone Group’s internationally focused Chemical Coinvest Partners LP, and renewed its $46 million annual commitment to the Alchemy Plan, a London-based buyout shop. In February CalSTRS invested $100 million in Toronto-based Onex Corp., another buyout firm.
Separately, Portland, Ore.-based Pension Consulting Alliance has held onto its lucrative CalSTRS contract for another five years. The retirement fund awarded PCA a new contract at its meeting in Sacramento last week, contracting with the firm to provide oversight and strategic guidance for the plan’s entire portfolio.
Allan Emkin, a managing director with PCA, has been CalSTRS’ general investment consultant for the last 19 years. PCA’s most recent contract came up for renewal this year. CalSTRS issued an RFP in February,.
Also, the pension fund voted last week to make an initial investment of up to $250 million in clean energy technology, part of a long-term state program that follows in the footsteps of the $200 million initial investment in “green” technology made by the California Public Employees’ Retirement System (CalPERS) in March. State Treasurer Phil Angelides is seeking an eventual $1.5 billion investment by CalPERS and CalSTRS.