To add another check to its selection process, the California State Teachers’ Retirement System has chosen four firms to serve as independent fiduciaries for its nearly $1 billion Private Equity Proactive Portfolio program, earmarked for fund managers operating in emerging markets in California and elsewhere in the United States.
The winners are Credit Suisse Customized Fund Investment Group; KPC Consulting Group; Meketa Investment Group; and PCG Asset Management, according to CalSTRS spokesperson Ricardo Duran.
CalSTRS began the search a little more than a year ago. The Private Equity Proactive Portfolio program, which had made total commitments of $985 million as of Oct. 31, has two dedicated fund-of-funds partnerships under its banner. These are the Banc of America Capital Access Fund, a $275 million program, and the New and Next Generation Management Fund, a $100 million program managed by INVESCO Private Capital.
The main duties of the independent fiduciaries will be to perform in-depth analysis, background checks and due diligence reviews of the partnerships that these funds-of-funds manager submit to the limited partner, according to Duran. The independent fiduciaries are not expected to present opportunities to CalSTRS and will only review those that one of the managers has already reviewed and approved. “The independent fiduciary acts as the unbiased third party,” said Duran. “The IF adds a layer of protection to our selection process.”
In addition to the two funds-of-funds managers, CalSTRS has eight directly-invested partnerships in the program. Although CalSTRS’s Proactive Portfolio Program does not have a set number of commitments or a designated commitment size, past individual pledges in the program have ranged from $20 million to $150 million.
CalSTRS, which has total investment assets of $129 billion, defines “emerging markets” as traditionally underserved markets, primarily located in California, including urban and rural communities undergoing or needing revitalization, with assets such as an available labor pool or underutilized infrastructure.
The limited partner recently massaged its private equity range to end its overallocation to the asset class. CalSTRS hasn’t raised its target allocation of 9 percent to private equity but instead has expanded its allowable range to plus or minus six percentage points from plus or minus two percentage points.
Because of the fall in global equity values and the illiquidity and static value of private equity, the allocation has far surpassed the prior allowed range, with an actual allocation of 13.7 percent, as of Oct. 31. “The targets and ranges will be subject to review during the 2009 asset liability study. Therefore, this recommendation [to expand the allowable range] can be considered interim in nature,” wrote Christopher Ailman, CIO, in a board document.