CalSTRS has hired Cambridge Associates as its private equity consultant for the Americas, spokeswoman Michelle Mussuto said in an email.
The selection was made following an RFP for private equity consultants for Americas, Europe and Asia-Pacific regions issued in April. CalSTRS officials are currently conducting due diligence and expect to hire private equity consultants for the other two regions when that work has been completed.
Separately, CalSTRS' investment committee Thursday approved a new private equity investment policy, adopting a new lower benchmark for its $20.1 billion portfolio.
The $226.1 billion California State Teachers' Retirement System, West Sacramento, changed its private equity benchmark to the Morgan Stanley Capital International All Country World index plus 1.5% down from Russell 3000 plus 3%.
CalSTRS officials chose to change the index so that private equity will use the same index that the pension plan uses for public equity, which is the MSCI ACWI, said Margot Wirth, director of private equity told the committee, during the meeting.
What's more, the Russell 3000 is an all U.S. benchmark but CalSTRS' portfolio is global, said Steven Hartt, principal at CalSTRS' private equity consulting firm Meketa Investment Group.
During the discussion, Keith Yamanaka, a delegate on the committee for board member State Superintendent of Public Instruction, Tony Thurmond, questioned CalSTRS' investment in private equity given the lower potential return.
Investors are supposed to receive a higher return for private equity due to the risks presented by the asset class, Mr. Yamanaka said.
If the risks have not changed but the returns CalSTRS officials are expect to receive are lower, does the potential risk/return profile of private equity still justify investment in the asset class, he queried.
"We may not want to overlook a potential issue that could come back to haunt us," he said.
In response, investment committee chairman Harry M. Keiley asked Ms. Wirth and Mr. Hartt to give their quick thoughts but suggested that a fuller later discussion might be warranted.
"It is what it is," Mr. Hartt said. "It's just the fact of what is going on" and what Meketa executives believe the future return prospects are for the asset class.
There may tactical changes CalSTRS can make to reap more returns from private equity such as the collaborative model, which would cut down costs, Mr. Hartt said.
Ms. Wirth noted that the 3% premium has been in place for 20 years when all returns had been much higher. Second, CalSTRS has recently changed to a geometric from arithmetic equivalent for returns and geometric is lower, making the reduction in premium not quite in half, she said.
CalSTRS absolute, geometric return objective for private equity over the next 20 years is 9%, compared to 7.5% for global equity over the same time period.
