In year of uncertainty, CalSTRS considers boosting PE target

California State Teachers’ Retirement System’s investment committee will consider increasing its target allocation to private equity by 1 percentage point at its next board meeting.

Large pension systems have been mixed about their PE allocations and pacing plans as they battle overexposure and slowing distributions. While many LPs see rocky times ahead and are reducing how much they plan on committing to private funds, others remain bullish about private equity’s potential, especially as the market has cooled and prices have fallen.

CalSTRS staff is recommending an increase to its long-term target allocation to private equity from 13 percent to 14 percent. A discussion on the recommendation is scheduled for the system’s May 4 investment committee meeting.

Buyouts reviewed the staff’s note detailing its recommendation.

The recommended allocation changes would reduce the $307.2 billion system’s target to global public equity by 4 percent, the note says.

According to the note, the staff believes the increased allocation to private equity provides more opportunity to generate alpha on top of gains from the premium associated with illiquid assets.

CalSTRS staff said the proposed uptick in private equity allows for more investment in the system’s Sustainable Investment Stewardship Strategies portfolio. The $9.4 billion SISS program focuses on sustainable investments and includes support of the system’s goal to reach a net-zero portfolio.

With $307.2 billion in assets, CalSTRS ranks as the nation’s second largest retirement system.

(This has been updated to clarify that the proposed allocation increase is 1 percentage point, not 1 percent. -Ed.)