By David G. Barry
The
California State Teachers Retirement System (CalSTRS) is above its private
equity allocation target – but that has not kept it from making additional
commitments.
According to information presented by consultant Meketa at CalSTRS’ Investment
Committee meeting, the $301.5 billion system during the first six months of the
year poured $5.1 billion into 38 investments. Included in that total were 14
co-investments, totaling $1.2 billion.
Tad Fergusson, a managing principal with Meketa, said the annual investing pace
for the program is $8 billion. In 2021, CalSTRS invested a record $12.6 billion
into private equity. Its prior high was $7.5 billion in 2019.
Its largest fund commitment was $350 million to Permira’s eighth fund. CalSTRS
also invested $300 million each in funds being raised by AlpInvest, Thoma
Bravo, Francisco Partners, Advent International and Apollo. The pension system
also deployed capital to Invesco, Arsenal Capital Partners, NEA, Riverwood
Capital Partners, Welsh, Carson, Anderson & Stowe, JMI Equity, Rubicon
Technology Partners, Orbimed, HG and Oak HC/FT.
Its largest co-investment was for $150 million. Details on the companies that
CalSTRS invested in was not disclosed.
As of March 31, the private equity portfolio’s net asset value (NAV) was $44.5
billion, or 14.5% of the total fund. CalSTRS set a long-term target for the
asset class of 13% in 2019, a figure which it implemented earlier this year. The
private equity program has grown nearly 29% since March 31, 2021.
In fact, the asset class accounted for just 9.5% of the total portfolio as of
March 31, 2019.
According to data on CalSTRS’ website, its private equity portfolio as of July
31 was actually at $47.2 billion, representing 15.2%. Buyouts account for 75%
of the system’s program, venture capital 10% and debt 5%.
John Haggerty, a Meketa managing director, indicated that CalSTRS might do less
than its pacing in 2022, perhaps $7.5 billion.
The fact that CalSTRS is overallocated to private equity is, in a sense, an accomplishment as the system has worked hard over teh past few years to get it up to the 13% figure. The system also is a big believer in the asset class, given the returns it has generated and its potential to help the system meet its future goals.
For the year ended March 31, CalSTRS’ PE program generated a one-year return of
24.2%, significantly above its 7.5% custom benchmark but lagging the 25.1% of
the Custom State Street Index. Fergusson said Meketa does expect returns to decrease
as firms mark down their investments in the months to come.
Fund investments generated 23.8% over the past year while co-investments
produced 26%. Co-investments accounts for 20% of the total investments.
