CalSTRS reports strong PE performance but braces for markdowns

California State Teachers’ Retirement System has seen sterling returns on private equity investments but says the good times may not last.

CalSTRS earned a one-year return of 24.2 percent and a 10-year return of 14.7 percent for its private equity program for valuations at the end of March, according to a presentation made by private equity consultant Meketa at the pension system’s investment committee meeting August 31. Buyouts watched a webcast of the meeting.

Private markets lag public markets by several months, as noted by Meketa managing principal Allan Emkin during the presentation.

“One piece of bad news is that, looking forward, non-public assets will be repriced to reflect what was happening in public markets. You should expect sometime in the next three to four quarters to see writedowns as private markets are not immune to what happens in the broader economy,” Emkin said.

Meketa director of private market investors John Haggerty said non-US buyouts and co-investments played important roles in the strong success of the $311 billion system’s private equity holdings. Co-investments comprise 20 percent of CalSTRS’ private equity allocations, Haggerty said.

“CalSTRS is very active in co-investments. And over the past years, co-investments are outperforming the broader private equity program,” Haggerty said.

CalSTRS has committed nearly $5 billion to private equity this year, according to Meketa private markets consultant Tad Ferguson. CalSTRS plans on committing $8 billion total to the asset class.

“We’re a little bit above pace. There has been a crowded fundraising environment so commitments have been front-loaded in the calendar year. But we still think it’s best to follow this budget and maintain discipline,” Ferguson said.

According to Meketa, CalSTRS has an actual allocation of 16 percent to private equity, above its 13 percent target.