CalSTRS to overhaul portfolio

The California State Teachers’ Retirement System (CalSTRS) has launched a search for investment managers to help it reach a 9% target allocation for alternative investments. To reach the target, the pension fund appears to be contemplating the sale of portions of its portfolio on the secondary market.

CalSTRS is asking potential investment managers to submit proposals by Nov. 14. The managers would oversee the restructuring of CalSTRS’ investment program through changes in asset allocation, portfolio liquidation and portfolio rebalancing.

Details of what CalSTRS plans do are unclear. But the move promises to be a significant one for the pension system, involving several asset classes and across various regions. “We are at the inception of an unprecedented change in our portfolio,” said CalSTRS Chief Investment Officer Christopher Ailman in a prepared statement. “These managers will be instrumental in our long-term asset allocation strategy to shift assets from fixed income to more aggressive blended investments that fall somewhere between our private equity and real estate asset classes.”

CalSTRS has been one of the private equity market’s stalwart institutional investors. The pension fund is a limited partner in buyout funds managed by Apollo Management, Bain Capital, Blackstone Group, The Carlyle Group, Clayton DubIlier & Rice, Kohlberg Kravis Roberts & Co. and Texas Pacific Group among a number of venture capital, secondary and other private equity funds.

In September, CalSTRS raised its target for alternative investments from 6% to 9 percent to achieve a higher-risk, higher-return asset mix. The plans for reaching the new asset allocations are under development, but the pension fund anticipates that it may take up to six years.

CalSTRS did not return calls for comment.

Meanwhile, the California Public Employees’ Retirement System (CalPERS) the nation’s largest public pension fund, is undergoing a similar restructuring, with plans to reduce the number of private equity relationships it manages and to change its management structure by using more outside managers. As part of the plan, the $200 billion pension system is considering a sell-off of private equity partnerships to the tune of about $3 billion. This includes $2 billion in partnership interests and $1 billion in unfunded commitments.

At the end of March, CalPERS also issued two requests for information as part of a strategic review likely to see the pension system reduce its directly held private equity fund investments significantly. —Matthew Sheahan