California State Teachers' Retirement System, West Sacramento, Calif., has high hopes for its commitment to a fourth Bank of America Merrill Lynch fund targeting domestic underserved communities, but little in the way of returns.
So far, its first three commitments — totaling $275 million — are all suffering losses. Performance for the first investment made in 2003 is the poorest at -28.6%, followed by -5.5% for its second investment and -14.4% for the third.
Undaunted, on Feb. 17, the $131.1 billion system announced a $100 million commitment to BAML's Capital Access Funds, with an option to double the commitment to $200 million within four years.
In the news release announcing the investment, CalSTRS Chief Investment Officer Christopher J. Ailman said system executives believe that offering capital to underserved communities in the inner cities and rural areas when cash for small businesses is in short supply “will yield long-term value.”
“We are widening our investment in this area because we feel there is untapped potential there,” spokesman Ricardo Duran wrote in an e-mail response to inquiries. Private equity funds typically have a 10-year lifespan, and the oldest CalSTRS' investment is only 7 years old, during which there was an “unprecedented market downturn” of 2008 and 2009, he noted.
Added Mr. Duran: “We also have to keep in mind the return curve on such investments initially goes downward before positive returns materialize.” — Arleen Jacobius
