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CalSTRS racks up $135.7 mln tab for PE management fees

  • Pension pays $147 mln in total PE expenses
  • Total includes staff salaries, operating costs
  • CalSTRS more cost-conscious after revelation it doesn’t track carry

The California State Teachers’ Retirement System paid $135.7 million in private equity management fees in 2014, according to a November investment cost report.

Those fees comprised the bulk of the $147 million in total expenses for CalSTRS’ private equity portfolio, which finished 2014 valued at approximately $20.3 billion. Besides management fees, CalSTRS paid $8.7 million in operating and miscellaneous expenses and approximately $3 million in salaries to its private equity investment staff.

The $181.3 billion retirement system became increasingly cost-conscious in recent months after staff disclosed it did not have a handle on how much carried interest its fund managers collected. The pension also does not know how much its general partners charge to their funds’ underlying portfolio companies for transaction, monitoring and other services.

“It is important to note that the types of services and fees can vary greatly and may be unique to a particular manager,” CalSTRS staff wrote in the report. “These partnership expenses are not captured in these investment cost reports.”

Even though totals for partnership expenses are not known, the report notes CalSTRS presents its private equity portfolio performance as net of all fees, including carried interest. In September, CalSTRS investment committee directed staff to identify strategies to strengthen its ability to track carry and portfolio company fees.

The retirement system partnered with the Institutional Limited Partners Association, which is developing a better reporting template for GPs that is projected for release in early 2016.

In October, CalSTRS board member and California State Treasurer John Chiang proposed legislation that would require GPs to detail all fees, carry and expenses to California public pensions, including city and county retirement systems.

Chiang said CalSTRS and the larger California Public Employees’ Retirement System lack the clout to obtain this sort of information on their own. “You always have challenges to get full disclosure in the manner that you want from your partners,” Chiang told Buyouts in an interview in October. “So we’re working with them, to educate them on how important it is to get the information to us in a form that’s understandable and clear.”

Action Item: Click here for CalSTRS’ annual investment cost report: