California State Teachers’ Retirement System’s private equity portfolio made “significant progress” in reaching its 13 percent long-term allocation target, driven in part by the system’s ramping up co-investing.
Private equity makes up 12.5 percent of the total plan, compared to 11.3 percent six months ago. The Program’s NAV, at $36.4 billion, grew by 58 percent or $12.5 billion since March 31, 2020.
Staff increased its co-investing, which now represents almost 16 percent of the private equity program, according to a PE review presentation at the board meeting Sept. 1.
CalSTRS’ PE portfolio is beating the Custom State Street Index Benchmark in the one-, three-, five- and 10-year time-frames as well as since inception. The three-year horizon is up 2.3 percent on the benchmark, the five-year is up 1.8 percent and the 10-year is up 0.3 percent and since inception it is up 0.2 percent.
According to the presentation, there were 36 completed commitments totaling $4.7 billion in the first half of this year. From July 2020 through June 2021, CalSTRS made 52 commitments totaling $9.1 billion, as the staff “continues to increase its emphasis on no/low fee co-investments by leveraging CalSTRS’ size, scale and reputation.”
The system increased its commitments in the asset class “significantly” over recent years, with the exception of 2020, due in large part to the covid-19 pandemic.
In 2017, CalSTRS committed $4.9 billion, followed by $6.9 billion in 2018, then $7.5 billion in 2019. The system’s pace dipped to $7 billion in 2020 and is now back up to $7.7 billion in 2021.
“Fundraising activity for private equity funds in the first quarter of 2021 decreased compared to the previous quarter, with $188.5 billion raised, but still marks the highest fundraising total for Q1 over the last five years,” according to the presentation document.
Fundraising in the first quarter of 2021 is up 16 percent from the same time last year and the number of fund closings also rose 5 percent, to 452 funds, according to the presentation.
“In general, fundraising is typically slower during the first quarter as managers are generally eager to close funds before year end,” said the report. “The immediate impact of covid-19 on global financial markets prompted some investors to reassess their allocations to private equity, but it appears fundraising has recovered to some extent in the past two quarters.” The report noted that the annual growth rate of private equity fundraising has been declining since 2017, so a longer-term slowdown “could be the prevailing trend.”
“Fundraising also demonstrated signs of further capital consolidation with larger, more established managers gradually increasing their market share,” the report said. “The average size of funds still in the market has been declining, indicating that smaller funds are hardest hit by the challenging conditions and have had difficulty establishing new LP relationships.”