PE nets 17.2 pct for CalSTRS, smashing benchmark

  • PE beats benchmark by 4.6 percentage points
  • $16.8 bln PE portfolio pushes CalSTRS above assumed rate of return
  • CalSTRS weighs proposal to expand secondaries, co-investment programs

California State Teachers’ Retirement System’s $16.9 billion private equity portfolio returned 17.2 percent over the previous fiscal year, preliminary performance data from the system shows.

Strong returns from the private equity portfolio, which outpaced its benchmark by 4.6 percentage points, pushed overall returns for CalSTRS’s $208.7 billion investment portfolio to 13.4 percent net of fees. Like its sister pension, California Public Employees’ Retirement System, the one-year returns pushed CalSTRS well above its 7 percent assumed rate of return.

The PE program’s one-year return was considerably stronger than what it netted last year, when PE netted just 2.9 percent for the system.

“Just as one bad year will not break us, one good year won’t make us. We intentionally keep our eyes focused on a 30-year horizon and make our adjustments with that time frame in mind, rather than reactively responding to any given situation at hand,” Chief Investment Officer Christopher Ailman said in a statement.

The PE portfolio netted a 9.6 percent three-year return as of March 31. Its five-year and 10-year returns were 12.4 percent and 8.6 percent, respectively.

CalSTRS will finalize its year-end returns when private equity and real estate performance data for the fourth quarter of the fiscal year, ended June 30, is available.

CalSTRS is weighing a staff proposal that would give its PE staff more leeway to invest in larger and more complex transactions, including acquisitions of large, diversified pools of assets via the secondary market.

Those could include stakes in private equity funds, as well as investments in the management companies of PE firms. CalSTRS also is exploring forming a strategic partnership to expand its portfolio of private equity co-investments, as well.

The retirement system’s board considered a draft of the proposal at its July meeting. A finalized version of the proposal will be considered in November.

CalSTRS did not respond to a request for comment.

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Christopher Ailman, chief investment officer of California State Teachers Retirement System, speaks during a lunch panel, “Europe at a Crossroads,” at the Milken Institute Global Conference in Beverly Hills, California, on May 2, 2012. Photo courtesy Reuters/Fred Prouser