CalSTRS hires AlpInvest as co-investment adviser to expand program’s reach

  • Assets under management: $223.8 bln
  • PE allocation: $18.2 bln/8.1 pct
  • PE target allocation: 13 pct
  • Co-investment portfolio: $1.3 bln
  • External PE managers: 122
  • Why this is important: CalSTRS has made significant changes to its co-investment program to give staff more authority

California State Teachers’ Retirement System hired AlpInvest Partners as its co-investment adviser to reach the smaller end of the private equity spectrum and extend its global reach, said Seth Hall and Robert Ross, portfolio managers in PE at CalSTRS.

Co-investments make up almost 7 percent of CalSTRS $18.2 billion PE program. With its no-fee, no-carry model, co-investments have generated high returns for the CalSTRS portfolio over the last five years, Hall said.

AlpInvest was selected after a rigorous process, Ross said. With offices in New York, Amsterdam and Hong Kong, and familiarity with these geographies, AlpInvest will be a good partner to source co-investment opportunities from these regions, he said.

AlpInvest was anchored by the Dutch pension funds APG and PGGM, before it was acquired by Carlyle Group in 2013. It invests in primary funds, secondaries and co-investments.

CalSTRS co-investment portfolio has a current market value of about $1.3 billion, pension documents said.

The size of the PE program, the decades of investing with GPs, the decision-making speed and thoughtful evaluation of opportunities have helped CalSTRS earn a strong reputation in co-investments, Ross said.

“GPs respect a fast no rather than a slow maybe,“ he said.

Co-investments will remain part of the staff function, but the AlpInvest relationships will help CalSTRS reach smaller funds and managers that it cannot access because of staff constraints.

In addition, AlpInvest’s geographical presence would make the process and communication seamless, Hall said.

AlpInvest will help CalSTRS source, diligence and execute its co-investments, Ross said.

The CalSTRS PE team has 15 investment professionals including Margot Wirth, director of private equity. AlpInvest’s 27-member team will serve as an extension of the CalSTRS staff, Ross said.

CalSTRS’s co-investment program, like the total program, has a home-country bias — 70 percent of the investments are in the U.S., the team said.

Of the remaining 30 percent, two-thirds is invested in Europe and one-third in the rest of the world, primarily Asia, Hall said.

CalSTRS co-investment program has changed significantly in the past year, awarding the staff more flexibility, pension documents show.

The co-investment limits were increased to $250 million, and staff could incur pro-rata due-diligence costs for unrealized transactions and got the ability to underwrite transactions, pension documents show.

Another policy-revision proposal for this year is to allow co-investments with GPs across all asset classes to take advantage of opportunities.

Update: This report was updated to include information that CalSTRS’s co-investment program has a current market value of about $1.3 bln; that the co-investment portfolio has generated high returns for the program over the past five years; and that the private equity team has 15 members, including PE Director Margot Wirth. 

Action Item: CalSTRS’s co-investment policy is here: