Muller & Monroe raising second emerging manager fund for CalSTRS

·         Assets under management: $223.8 bln

·         PE allocation: $18.2 bln/8.1 pct

·         PE target allocation: 13 pct

·         Emerging managers portfolio: $1 bln

·         Why this is important: CalSTRS has committed  $750 mln in the last two years to its emerging managers strategy

Muller & Monroe Asset Management’s new emerging manager fund for the California State Teachers’ Retirement System raised $251.25 million, according to a Form D.

Muller & Monroe is part of CalSTRS’s emerging managers strategy. Other managers that work on the strategy are Bank of America’s Capital Access Funds Management (later acquired by HarbourVest Partners) and Invesco Capital Partners.

CalSTRS committed $250 million each to new funds by HarbourVest and Invesco in 2017.

Through its emerging managers strategy, CalSTRS invests in new and emerging managers, underserved markets and in niche or specialty emerging managers, its 2018 annual report said.

CalSTRS-M2 Private Equity Fund-of-Funds III, as the new fund is called, was more than double the size of M2 Private Equity Fund-of-Funds II (MPEFF II), the first Muller & Monroe commingled fund that received a commitment of $100 million in 2014.

The first Muller & Monroe fund for CalSTRS, MPEFF II, focused on lower middle-market emerging and niche firms where women and minority-owned funds were actively considered.

MPEFF II was fully committed with $124 million invested in 11 funds where 50 percent of the fund managers had partners that were women or ethnically diverse, CalSTRS 2018 annual report said.

Muller & Monroe’s first commingled fund with CalSTRS produced an internal rate of return of 6.44 percent as of March 31, 2018, pension documents said.

Other Emerging Manager funds

CalSTRS’s New & Next Generation Manager funds managed by Invesco invest in first, second and third-time private equity funds.

The system committed $200 million to Fund I, $250 million to Fund II and $100 million to Fund III. It committed $250 million the fourth fund in early 2017.

Invesco’s funds I, II and III produced internal rate of returns of 9.1 percent, 8.71 percent and 8.77 percent, as of March 2018.

Invesco had committed $381.2 million into groups that represent diversity in the senior partnership team as of Jan. 31, 2018, pension documents said.

CalSTRS also developed a feeder program with HarbourVest through the HarbourVest Horizon fund to invest in private equity funds specialized in reaching inner U.S. cities or other underserved markets.

CalSTRS committed $250 million to HarbourVest Horizon Fund VI in December 2017.

 The system’s emerging manager strategy had more than $1 billion in assets under management, almost 6 percent of the $16.8 billion private equity portfolio, the report said.

Action Item: Read CalSTRS’s annual report here

Update: This article has been updated to include the name of the first Muller & Monroe fund for CalSTRS