CalSTRS rehires PCA as consultant

The $152bn pension system, which has alternated advisors frequently during the past two decades, has rehired Pension Consulting Alliance as its private equity consultant.

The California State Teachers’ Retirement System has rehired Pension Consulting Alliance as its private equity consultant for the next five years.

PCA beat out fellow finalist candidate Meketa Investment Group for the mandate. CalSTRS has used PCA as its consultant since 2007, but has alternated consultants frequently during the past two decades, re-bidding the consultant contract every five years.

In addition to providing analysis of proposed investments, PCA will also assess CalSTRS’ private equity portfolio performance, review the pension’s annual business plans and make independent recommendations on private equity investment strategies.

PCA will not, however, recommend specific investments to CalSTRS’ investment committee. The $152 billion pension system has since 2002 required that external managers evaluating the performance of the portfolio cannot also recommend investments. Cambridge Associates and Altius Associates act as gate-keepers for CalSTRS.

Eight years after CalSTRS revised its consultant policy due to the potential conflict of interest, the California Public Employees’ Retirement System adopted the same rule and ended its long relationship with Pacific Corporate Group, which provided both investment advisory services and also ran funds into which CalPERS committed capital.

The first advisory firm CalSTRS worked with was Abbott Capital, which was hired in 1988. Abbott was replaced by Pathway Capital Management, which held the contract until 2002, when McKinsey & Company took over.

Since its formation in 1988, CalSTRS’ private equity programme has earned a net IRR of 13.4 percent, beating its custom benchmark by 4.3 percentage points, according to pension documents. CalSTRS’ private equity portfolio was valued at $22 billion, or 14.4 percent of the overall investment portfolio, as of 31 March, 2012.

The system’s in-house staff of 13 employees manage the private equity portfolio, which includes co-investments and secondary interests. The portfolio is made up of 301 active investments involving 117 firms as of September 30, 2011.