CalSTRS Unveils IRRs for 110 PE Funds

Plan consultant McKinsey & Co. shed some light on the initial rates of return (IRRs) for 110 private equity funds last week. It completed its semi-annual review of the California State Teachers’ Retirement System’s (CalSTRS) $4.1 billion private equity portfolio.

About half the IRRs were already released by CalSTRS when it released a report current through June 30, 2002 in December. The University of Michigan disclosed the value of all the funds in its private equity portfolio two weeks ago, while the nation largest private equity investor, California Public Employees’ Retirement System (CalPERS) disclosed its results in December and University of Texas’ Investment Management Company made its disclosure in November.

CalSTRS has about 130 private equity funds in its portfolio and has been working since November to get all its general partners to waive confidentiality agreements that bar the pension fund from reporting fund performance to the general public. New to the list of private equity firms that have agreed to release their IRRs are Kohlberg, Kravis & Roberts, New Enterprise Associates and Welsh, Carson, Anderson & Stowe. CalSTRS is continuing negotiations with those that have not yet waived the confidentiality agreements and plans to have a complete list by the time McKinsey & Co. makes its next semi-annual performance report in September.

So what do CalSTRS’ most recent numbers show?

As of Sept. 30, the overall program reported a 1-year loss of 7.2%, that’s better than Venture Economics’ weighted pooled mean loss 11.2% during the same period. CalSTRS’ buyout funds were down 4.5% for the year, while venture capital funds lost 20.1% of their value during the year. The program has returned 16.2% to the pension fund since it was initiated in 1988.

More than 70% of the $4.1 billion portfolio sits in buyout funds, while 23% sits in venture capital funds, mostly early-stage funds. The rest is invested in distressed debt, mezzanine and secondary funds. The fund’s capital contributions to general partners totaled $1 billion in 2002, while the program’s unfunded commitments to 127 funds now totals $10.5 billion.