CalSTRS Mulling More Buyouts

The California State Teachers’ Retirement System (CalSTRS) is considering a plan to slightly cut back its venture allocation in favor of more buyouts. The pension system’s investment committee will meet in July to consider recommendations that its target allocation for buyout funds be increased from 60% to 70% and that the target allocation for investment in venture funds be lowered from 25% to 15 percent.

The recommendation came from CalSTRS staff in a report that was made public last week. The report’s suggested changes are designed to help the pension system reach its target alternative asset allocation of 8 percent. The pension fund’s current allocation is just over 5%, or roughly $6.4 billion out of a total portfolio of approximately $125.2 billion. Achieving the 8% allocation would put $4 billion more into circulation.

If the recommendations are adopted, CalSTRS will increase its investments in buyouts funds from $3.8 billion currently to $7 billion. Its VC investments would decrease slightly from $1.6 billion currently to $1.5 billion.

The staff report cites a faster growing buyouts market and already falling exposure to venture capital.

If the plan were approved, CalSTRS would be following the California Public Employees’ Retirement System (CalPERS), which decided in mid-May to allow investments of up to $800 million in a single top-quartile fund.

Private equity limited partners have long been looking to increase their holdings in private equity or structure programs that allow them to build a private equity portfolio in line with the California pensions.

Another pension fund, Ohio Public Employees’ Retirement System (OPERS) made a similar move last year, cutting its venture target allocation by about $240 million. OPERS, attributed the change to concerns that it wouldn’t be able to get into enough “top-quality” venture funds.

In April, New Mexico’s governor signed a law that allows the state’s three pension funds to invest more freely in alternative assets, including private equity (see PE Week, April 18, 2005).

In March, Mississippi’s governor signed into law a bill that allows the $16 billion Public Employees Retirement System of Mississippi to invest in alternative assets.

Meanwhile, the New Jersey State Investment Council approved a plan to invest 13% of its $66 billion in assets into alternative investments. The plan would allocate 5%, or about $3.3 billion, of its assets to private equity.

The New York State Legislature is considering a plan to liberalize its pension investment laws also, which would clear the way for increased private equity investing (see PE Week, April 26, 2005).