CalSTRS' total portfolio costs in 2017 were 84 basis points including carried interest and 50.7 basis points without carried interest, relatively flat in basis-point terms from the prior year, according to a report for the pension fund's upcoming Nov. 7 investment committee meeting.
In 2016, the $229.2 billion California State Teachers' Retirement System's total portfolio costs were 84.1 basis points with carried interest and 50 basis points excluding carried interest.
However, in dollar terms the West Sacramento-based CalSTRS' total portfolio costs grew 11.9% including carried interest to $1.8 billion and was up 14% to $1.1 billion without carried interest in the year ended Dec. 31. During the same period, CalSTRS' net asset value grew 12.1% to $218.2 billion. CalSTRS attributed the increase to new private market commitments made during the year.
"Fee rates in the first few years of an investment are typically based on committed capital (larger base) rather than the contributed capital or NAV (smaller in the initial years)," the report noted. What's more, managers have been selling assets, which also contributed to the carried interest increase, the report states.
Ninety-seven percent of the cost excluding carried interest in 2017 was from external managers. Internally managed investments represent 44% of the total portfolio; however they represent only 3% of the total costs, excluding carried interest, the report states. External management costs were about $1.1 billion in 2017 compared to $30 million of internal management costs. Alternative investments had higher costs (about $898 million) than publicly traded asset classes ($208 million) in 2017.
