CalSTRS made $4 billion in private equity commitments, eight co-investments and one diversified secondary co-investment in the second half of 2018, according to private equity report released for the investment committee's upcoming meeting Thursday.
Overall in 2018, the $226.5 billion California State Teachers' Retirement System, West Sacramento, made $7 billion in private equity commitments, compared to $7.5 billion the year before.
CalSTRS committed $500 million to Blackstone Tactical Opportunities Fund III, a global multistrategy fund, and $100 million to Blackstone Energy Partners III, a North American buyout fund, managed by Blackstone Group; $500 million to Ardian ASF VIII, a secondaries fund of funds that invests in the U.S. and Europe; and $450 million to Hellman & Friedman Capital Partners IX, a North American buyout fund. Pension officials also committed $250 million each to PAG Asia III, an Asia-focused buyout fund; M2 Private Equity Fund-of-Funds III managed by Muller & Monroe Asset Management; and WCAS XIII, a North American buyout fund managed by Welsh, Carson, Anderson & Stowe.
CalSTRS committed $150 million each to AlpInvest Co-investment Fund, a global buyout co-investment fund managed by Carlyle Group's AlpinVest Partners; TPG Asia VII, a buyout fund; and TOPS IV, a global multistrategy fund.
Pension fund officials also committed $125 million to Littlejohn Fund VI, a U.S. buyout fund managed by Littlejohn & Co.; $120 million to JMI Equity Fund IX, a U.S. venture capital fund managed by JMI Equity; $113 million to Triton V, a European buyout fund managed by Triton Partners; $100 million each to Palladium Equity Partners V, a buyout fund managed by Palladium Capital Management; Vivo Capital Fund IX, a North American venture capital fund; Siris Partners IV, a U.S. buyout fund managed by Siris Capital Group; and TSSP Capital Solutions, a debt-related fund managed by TPG.
CalSTRS also committed $60 million to GGV Capital VII/GGV Capital VII Plus and $20 million to GGV Discovery II, Asia-focused venture capital funds managed by GGV Capital.
The report did not identify the co-investments or the diversified secondary co-investment.
Separately, the staff is recommending that CalSTRS move the allocation closer to its long-term asset allocation targets adopted in 2015. If adopted by the investment committee, CalSTRS would to increase its target allocation to inflation-sensitive assets, private equity and real estate by 1 percentage point each to 3%, 9% and 13%, respectively. CalSTRS would cut its global equity allocation by 3 percentage points to 51%.
The rest of the target allocations would remain the same: 13% fixed income, 9% risk-mitigating strategies, 2% cash liquidity and zero to innovative strategies.
These asset allocation changes will roughly match the current asset allocation and therefore not result in any specific asset transactions or manager changes, a report to the investment committee said.
These changes could be temporary because CalSTRS is currently in the midst of a new asset-liability study. Officials expect to adopt a new long-term asset allocation as early as November, with approval of the new asset allocation in the investment policy and a review of an implementation plan in February 2020.
Separately, the staff has selected four finalists in its search for a general investment consultant or consultants: Verus Advisory, RVK, Meketa Investment Group and Pension Consulting Alliance. CalSTRS had launched an RFP in December because the contracts for its lead general investment consultant PCA, now being acquired by Meketa, and co-general investment consultant Meketa will expire May 31. The investment committee is scheduled to make a selection of one or two general investment consultants at its upcoming meeting.
In other action slated for CalSTRS upcoming meeting, the investment committee could approve the creation of a risk budget, a new strategy for CalSTRS that would set a limit of risk around the board's strategic allocation. If approved, the risk budget could enable greater delegation to staff in choosing benchmarks.
For example, if the board adopts a risk budget target of plus or minus 1.6% around the policy benchmark, it would allow staff the flexibility to implement and allocate the 1.6% risk budget across all investments to the most promising investment opportunities, a staff report said.
Historically, CalSTRS' portfolio has had an annual tracking error — the deviation from its benchmark — of 1.6%.
"It is important to note that staff is not seeking to increase the level of risk, but rather to increase the level of flexibility to seek opportunities with the same level of risk," the report said.
