- CalSTRS share of fees charged to portfolio companies, other expenses total $150 mln
- $193.2 bln pension’s GPs collected $516.4 mln of carry
- PE portfolio valued at $16.3 bln
California State Teachers’ Retirement System pulled back the curtain on its private equity program, releasing new information about indirect fees and expenses charged by its managers.
The report, included in the system’s upcoming meeting materials, includes data about CalSTRS’s share of the costs that PE firms charge to underlying portfolio companies for consulting and board-director seats.
While those portfolio-company-and partnership-level costs were always netted out of CalSTRS’s ultimate return, the system had not previously accounted for them.
CalSTRS’s share of those expenses totaled $83 million in 2015, according to the report. Partnership-level expenses, including accounting, audit and tax, and partnership taxes charged to the fund, totaled $56 million.
Those costs are separate from the annual fees CalSTRS pays private equity firms to invest and manage their capital, which are typically charged against committed or invested capital. The $193.2 billion retirement system paid general partners $195.6 million in PE management fees in 2015.
The report also includes information about CalSTRS’s pro-rata share of investment profits that private equity firms collected as carried interest. CalSTRS GPs collected $516.4 million of carried interest last year.
The new report puts CalSTRS among a growing number of public pensions that have bolstered their efforts to track PE fees and expenses.
Recent enforcement actions by the SEC found that many GPs, including major firms managing money for CalSTRS, failed to properly disclose information about fees and expenses charged by their funds and affiliates.
Amid those findings, pensions like CalSTRS and California Public Employees’ Retirement System faced growing pressure from their boards to improve their private market accounting practices.
CalSTRS prepared the new report with Pavilion Alternatives Group (previously known as LP Capital Advisors) after the retirement system’s investment committee in February requested more information about indirect fees and expenses.
CalSTRS valued its PE portfolio at $16.3 billion as of Sept. 30. The system is a little more than half a percentage point short of its 9 percent allocation target for the asset class.
Action Item: For more information about CalSTRS: http://www.calstrs.com/