Firms & Funds

In review of PE contracts, CalSTRS finds no fault with GPs

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CalSTRS, private equity, pension fund, venture capital
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
  • $193.4 bln pension ensures GPs adhere to LPAs, side letters
  • CalSTRS staff to discuss reviews findings on Wednesday
  • CalSTRS PE portfolio valued at $16.3 bln

California State Teachers’ Retirement System recently completed a review of five of its general partners and found them “substantially compliant” with the terms set in their fund contracts.

CalSTRS finished its review in June, a memo shows. The staff’s findings will be discussed at the retirement system’s Sept. 14 investment-committee meeting.

“The results of the report provided reputable evidence that the general partners reviewed are substantially compliant with the limited partnership agreements and side letters, and that the general partners’ internal control and compliance policies and practices did not appear to have any material weaknesses,” CalSTRS staff wrote.

As of March 31, CalSTRS’s private equity portfolio included stakes in more than 357 investments, valued around $16.1 billion. Taken together, the system’s relationships with Blackstone Group, TPG Capital, Carlyle Group, CVC Capital Partners and Centerbridge Capital account for more than a quarter of the portfolio’s total investment exposure, according to a recent report the retirement system released.

It’s unclear which managers were reviewed and why they were chosen. In the memo, CalSTRS staff said the review did not constitute an investigative audit.

A retirement system spokesman declined to comment.

California’s public pensions became the center of a controversy surrounding fees, carried interest and transparency last year after California Public Employees’ Retirement System staff admitted they had not kept track of certain fees and expenses. CalSTRS officials also conceded they didn’t have a full grasp of its portfolio’s full costs as well.

In August, the state legislature passed a bill requiring general partners to provide public pensions with more information about fees and expenses charged to their funds and underlying portfolio companies. State and local pensions would have to publish this information annually.

Gov. Jerry Brown had not signed the bill as of Sept. 12.

CalPERS, which currently manages $307.9 billion of state retirement-system assets, completed a similar review earlier this year. All the GPs in the CalPERS analysis were found in compliance with their fund agreements, Buyouts reported in July.

CalSTRS held 8.3 percent of its assets in private equity as of Sept. 12, a little short of its 9 percent target. The system committed around $1.3 billion to PE in the first half, according to a recent report.

Action Item: More about CalSTRS: www.calstrs.com