The California State Teachers Retirement System (CalSTRS) last month evaluated its asset allocations and made some notable changes in favor of private equity. The $96 billion pension fund decided to increase its allocation to alternative assets to 8% from 4.9%.
While some private equity fund raisers, particularly rookies, are having a tough time finding the capital to meet their targets, the increase in alternative allocations should come as a welcome change.
The investment committee, which evaluates the group’s allocations every second year, continues to have discussions about the allocation changes and has not yet decided how the 8% should be divvied up within private equity, said a spokesperson for CalSTRS. The alternative asset portfolio, which now stands at $4.64 billion, as of September 30, 2001 committed $2.71 billion, or 58.5% of the portfolio, to buyout funds. Additionally, $2.37 billion went to unfunded commitments, which represents $5.09 billion, or 55.7% of the alternative investment portfolio.
“We recommended the change because our cash flow allows the CalSTRS fund to allocate a larger percentage to private market investments,” said Christopher Ailman, CalSTRS’ chief investment officer, in a statement. “We believe that there is greater opportunity to add value in the inefficient markets of private equity and real estate.”
CalSTRS increased its real estate allocation to 7% from 5%.
Additionally, the pension fund is lowering its non-U.S. equity investments to 20% from 25%. “The drop in non-U.S. was a fixed limit to put us closer to our peers that average 16% in non-U.S. equity,” Ailman stated. “We were at 25%, well ahead of the others. Now we are still ahead, but not so dramatically different.”
So far this year, CalSTRS made commitments to European buyout funds APAX Europe V and CVC III, as well as to energy focused-fund First Reserve IX, and buyout fund Madison Dearborn Capital Partners. CalSTRS also made a commitment to Whitney V, However, the pension fund considers that fund to be part of its equity expansion sub-category, rather than a buyout, said Sherry Reser, public information officer at CalSTRS. And in July the fund made a commitment to Thomas H. Lee IV, which it classifies as a secondary interest investment.