CalSTRS spent $935 million in external management fees in the 2015 calendar year, the largest chunk of it, $796 million, attributed to private markets firms, shows a report to be presented at the pension fund's Nov. 16 investment committee meeting.
The report is the first time the $193.2 billion West Sacramento-based pension plan has disclosed full private equity fees including carried interest. The report says 39% of the total fees paid by CalSTRS is attributable to carried interest.
Public market investment fees amounted to a much smaller $139 million, the report said.
“Private assets are complex and require a higher degree of expertise, resulting in higher costs,” the report noted.
Overall, total costs of managing CalSTRS investments, including internal costs, came to $1.5 billion, up from the $963 million in the 2014 calendar year. However, the 2014 figures did not include some $320 million in net partnership expenses and other fees, according to the report.
The California State Teachers' Retirement System has a $16 billion private equity program, one of the largest in the U.S. by an institutional investor.
The issue of how much pension funds are paying in fees to private equity firms became part of a controversy in 2015 when the $300.5 billion California Public Employees' Retirement System, Sacramento, first disclosed it was unable to say how much in carried interest, or performance fees, it was paying for its private equity program.
California Gov. Edmund G. “Jerry” Brown Jr. signed legislation into law in September that requires CalPERS and CalSTRS to disclose both management and performance fees for private equity.
