California State Teachers? Retirement System?s board of directors last week eased its investment approval process for the purchase of secondary interests in private equity funds, thus opening the gates for a possible flood of capital into the secondary market.
As private equity investors reach target allocations or liquidate their portfolios to cover losses in other asset classes, the Sacramento, Calif.-based retirement system is betting that a stream of secondary interests ? considered less risky than traditional limited partnership interests and often sold at a discount ? will hit the market.
“The policy change is going to increase the deal flow,” said a CalSTERS spokeswoman. “We?re expecting there will be more opportunity in that arena and we?re positioning ourselves to take advantage of the market.”
Still, the pension fund?s total asset allocation will not change. Currently, 5% of the $105 billion investment portfolio is dedicated to alternative investments, including venture capital, buyout, international equity, fund-of-funds and mezzanine debt funds. Currently, less than 5% of that figure is held in secondary market interests.