CalSTRS Goes Global

The California State Teachers’ Retirement System (CalSTRS) will begin to explore private equity investment in regions where it has never invested before, including Asia, Eastern Europe and Latin America.

If the pension fund adopts a plan proposed by consultants McKinsey & Co. at its meeting Wednesday in Sacramento, its $5.2 billion private equity program could reach across the globe. It currently limits international investments to Canada, the United Kingdom and Western Europe. While encouraging the pension fund to make the move, McKinsey & Co. also warned, however, that exploring new markets is a risky proposition.

;Challenges arise from higher inherent risks and economic volatility in many of these markets, greater difficulties in exiting investments, very limited data on performance, perceived mixed or weaker historical returns, and a smaller universe of potential partners with whom to invest,” McKinsey & Co. writes in a report to the board.

In 2002, teams managing private equity funds outside North America and Western Europe raised $3.2 billion, or 4% of the worldwide total. If CalSTRS’ investment committee adopts the new plan, up to 25% of its private equity portfolio could be invested abroad, though the majority of that would remain in Canada, the United Kingdom and Continental Europe.

CalSTRS’ private equity portfolio already includes $1.8 billion of international commitments. The investment committee will likely vote to approve the plan at its meeting next month, says CalSTRS spokeswoman Kirsten Macintyre.

CalSTRS, the nation’s third largest public pension fund, manages a $113 billion investment portfolio.

Email Carolina Braunschweig