Aside from sending more commitments overseas, the LP’s program will likely evolve in other ways, including becoming a larger investor in the clean and alternative energy markets, launching investments in commodities, and establishing a officers in Europe and Asia. In addition, CalSTRS is looking to hire 10 new investment professionals in the coming years.
No other U.S. pension fund, including
“We’re hoping to do that in partnership with other institutional investors,” said Real Desrochers, director of private equity, in a statement prepared for Buyouts. “We’re looking four to five years down the road … and CalSTRS is far from any definite decisions.”
The idea is to have staff on the ground in places where CalSTRS is interested in developing partnerships. These staffers can read the local investment climate to have a better sense of what is likely to develop into a fruitful partnership for the private equity portfolio. “Doing this can provide an added dimension to our comprehensive due diligence practices in vetting and approving PE partnerships,” said Desrochers. CalPERS may, over time, become a partner in this initiative.
Based on its projections, the market value of CalSTRS’s private equity holdings will reach $34 billion, or 15 percent, of the pension fund’s total portfolio by 2012. An asset liability study in 2009 will determine the course of the entire investment program for the future, said CIO Christopher Ailman in a recent report. The limited partner now has a 10 percent allocation to private equity.
The Alternative Investment unit, which will soon be renamed the Private Equity unit to reflect what it actually manages, plans to maintain its core strategy of concentrated commitments to top-performing managers, along with direct investments in general partner management companies and co-investments in portfolio companies. While the United States and developed European markets will continue to be the core of the portfolio, CalSTRS expects to selectively invest in the rest of the world, which represents roughly 9.1 percent of the overall private equity investment universe. Expect more money directed to emerging markets.
The market value of the private equity portfolio climbed from $6 billion in June 2005 to $17 billion in June 2008, while expenses rose marginally (with only three additional staff members). However, costs are expected to increase as the program grows. Additional costs will come from supporting infrastructure, including staffing, advisers, independent fiduciaries and legal support. And the globalization of investments will require additional travel costs.