The $174 billion (€112 billion) California State Teachers' Retirement System, the second largest public pension in the US, has committed $200 million to a “next generation” fund of funds managed by Invesco Private Capital, its second such investment fund manged by the publicly listed firm.
CalSTRS' New and Next Generation Manager Fund II will invest in private equity partnerships raising their first, second or third institutional fund. It is nearly identical to a $100 million next generation fund CalSTRS launched in 2005, also managed by Invesco.
“We are committed to excellent returns and to supporting general partners who have not had the opportunity to have their own firms,” said Mary Kelly, general partner and managing director of Invesco Private Capital.
Invesco, which was reportedly selected from 10 other firms in a competitive process that began in 2004, plans to invest the exclusively CalSTRS financed fund of funds over a five-year window in young firms focused on buyouts, venture capital, and other sectors.
“Next generation” funds typically target smaller, start-up private equity firms that major institutional LPs such as CalSTRS will often wait to invest with until they have an established track record.
CalSTRS also said that the new fund is part of an overarching commitment to partner with diverse GPs that better represent California demographics.
“Our mandate is investing in first, second or third institutional funds. Within that mandate, we often see general partners that are often minorities or women,” said Kelly.
Kelly cites the firm's long history in private equity as one of the key ingredients behind its “next generation” management, as the company dealt with many new and inexperienced private equity firms during the industry's infant stages.
CalSTRS currently manages roughly $17.72 billion in alternative assets, and in December increased its overall allocation to private equity to 8 percent.
CalSTRS has enjoyed a 19.8 percent rate of return from private equity investments since the retirement system began investing in the industry in 1988.