Private Equity News & Analysis

CalSTRS contemplating more distressed debt

CalSTRS, the California State Teachers' pension fund, looks set to increase its allocation to distressed debt in view of declining public markets.

-

The California State Teachers' Retirement System (CalSTRS), the third largest pension fund in the US, may commit in the region of $300m to distressed debt investments before March this year, according to Private Equity Week.

According to the report, CalSTRS, which currently holds $172m in debt-related securities, looked into distressed debt last August when state controller and CalSTRS investment committee member Kathleen Connell warned that a California state budget shortfall would not allow the state's general fund to cover its unfunded liabilities. Although the $100.8bn pension fund is currently fully funded, falling returns in its public and private equity portfolio have made distressed debt an attractive option.

The report quotes Connell saying: 'It's counter-cyclical to go into distressed debt. I would not have recommended it two years ago, but it is a great asset class to be in now. Given the state of the public equity markets, it is an asset class we need to consider.'

    Â