CalSTRS to ‘redouble’ GP monitoring efforts

The $132bn pension is making a big commitment to identify ‘errant’ GPs as part of a process to reduce its relationships.

The California State Teachers’ Retirement System is culling its private equity programme, losing managers that are underperforming and keeping its eyes open for “new and potentially less traditional” opportunities.

CalSTRS’ board is discussing business plans for private equity and real estate at its meetings this week. The core idea behind the private equity business plan is that the team has “entered a period in which there will be a net reduction in the number of its active general partner relationships”, the pension said in board documents.

“Staff is redoubling its efforts to monitor its existing partnerships and detect those heading in errant directions while at the same time remaining alert to new (and potentially less traditional) investment opportunities,” CalSTRS said in documents.

CalSTRS, with $132 billion in assets, allocates 12 percent of its fund to private equity investments. About 90 percent of CalSTRS private equity portfolio is externally managed, while 10 percent is managed in-house in co-investments. The private equity programme is headed by Margot Wirth.

Earlier this year, Christopher Ailman, CalSTRS' chief investment officer, told PEO the pension was mapping a plan to move forward, even while waiting to see how private equity funds raised in 2007 and 2008 performed.

“What you're trying to do now is figure out a plan on how to go forward,” explained Ailman. “Not a lot of people are raising funds; what kind of funds do you want to [commit to]?”

CalSTRS is one of the signatories of the guidelines created by the Institutional Limited Partners Association. Creating more alignment between the interests of general partners and limited partners will be imperative to CalSTRS’ programme going forward, the pension said.

“Fairness issues, transparency, alignment of interests and investor protections are being substantially improved for new generation partnerships,” CalSTRS said in documents. “The improvement process is ongoing.”

CalSTRS has put together business plans for all its asset classes with the goal of earning “$10 billion in profits from the financial markets, and add an extra $1 billion of return above the market”, CalSTRS said.