CalSTRS, CalPERS bulk up back offices

The US' two largest public pensions are responding to increased private equity workloads by adding staff to better manage GP relationships.

The California Public Employees' Retirement System and the California State Teachers' Retirement System are bulking up their staffs, in part to better handle investment and administrative private equity-related duties.

Like many other pension funds, CalPERS and CalSTRS are finding that their staffs are stretched thin at a time when limited partners are seeking even more information about their alternative investment portfolios.

As the private equity industry has matured and become more institutionalised over the past several years, reporting, accounting and compliance requirements have become more complex and time consuming.

CalSTRS

CalSTRS is adding a new position to its investment team to address increased operational demands including more stringent fair market value standards, greater scrutiny of unfunded commitment amounts and an increase in the amount of portfolio company information available to analyse, according to pension documents.

The $132 billion pension is in the process of reorganising its internal operations group and is adding a new position to oversee all such activities.

“As the private equity industry has matured and become more institutionalised over the past several years, reporting, accounting and compliance requirements have become more complex and time consuming. [The pension's] resources dedicated to reporting, compliance and accounting have not kept pace (especially when the overall growth of the portfolio is factored in),” according to investment committee minutes.

CalSTRS also is in the process of increasing sub-sector expertise on its investment team as each investment staffer has been assigned one or more areas of expertise, including private equity and real estate.

“The goal is for all team members to retain their overall high level of general industry knowledge while also gaining deeper domain knowledge within their individual areas of expertise,” according to CalSTRS documents.

Meanwhile, CalPERS recently hired Janine Guillot as the $203 billion pension fund's chief operating investment officer. Guillot, who reports to CIO Joseph Dear, works with senior staff to implement strategies for the pension fund's real estate, alternative investment and public market portfolios, including the development of portfolio trade and management systems for private equity investments.

Guillot joined CalPERS from Barclays Global Investors where she was managing director and chief operating officer for BGI's $450 billion global fixed income business.

CalPERS investment staff may be dealing with an even larger work increase once the pension's plan to allow GPs to submit fundraising requests online becomes operational.

CalPERS is planning to set up an automated PPM system for managers where the proposals, once submitted, would be reviewed by CalPERS investment staff. It would cover private placement memoranda from managers of private equity, real estate, and infrastructure funds. The new policy would also be required for forestland, commodities, global fixed income and global equity investments.

Other US pension funds are seeking outside help for the increase in administrative work.

The State of Wisconsin Investment Board (SWIB) recently issued an RFP demonstrating the growing need for administrative help on the LP side of the market. “The workload has increased for SWIB's accounting area, and we are looking to use SWIB resources for more analytical work,” said a SWIB spokesperson.

To ease the accounting burden, SWIB is seeking to hire a consultant to perform private equity monitoring and reporting services for its $67 billion core fund.

The pension already has an investment advisor for private equity – Hamilton Lane. But now it has found the need to supplement that relationship with further administrative help. “The request is for back-office support, which includes duties that are now being shared by both Hamilton Lane. . . and the SWIB staff,” said the spokeswoman.

Last year, the San Antonio Fire & Police Pension Fund hired Invient to provide back-office support for its $1.9 billion fund to free up staff time and reduce costs. This support comes on top of traditional manager-selection duties. San Antonio has a 6.4 percent allocation to private equity.