CalSTRS spends $75m on RE carried interest

The pension system, which managed $25.8bn in real estate as of December 31, disclosed its carried interest and expense for the first time this week.

The California State Teachers’ Retirement System has disclosed its fees by asset class for the first time in materials for its Wednesday meeting.

The pension system found that real estate managers were awarded $75 million in carried interest for the calendar year 2015. CalSTRS, which managed $186.1 billion as of December 31, spent $1.4 billion on carried interest across asset classes in the 2015 calendar year.

Apart from these fees, CalSTRS, which had $25.8 billion in externally-managed real estate as of December 31, also spent $326,764 on expenses for real estate over the same time period. Across asset classes, CalSTRS spent $963,184 in expenses.

CalSTRS joined other US public pension plans moving to increase transparency in its fee structures, a goal made more difficult by the lack of industry standard for investment cost reporting, CalSTRS said in its Wednesday materials. The pension system had over 600 partnership investments, separate accounts, joint ventures and co-investments across asset classes, with no current standardized fee reporting system. CalSTRS, which managed $186.1 billion as of December 31, spent $1.4 billion on carried interest across asset classes in the 2015 calendar year.

“Investment costs are an important determinant of fund performance; they are a drag on investment results and require close oversight and active monitoring,” the pension system wrote in its Investment Committee presentation materials for Wednesday. “We are keenly aware of the important role investment costs play in meeting our risk/return objectives and the need to push costs even lower.”

To track its management expenses, CalSTRS hired Sacramento, California-based consultancy Pavilion Alternatives Group. Fee tracking came with its own price tag: $425,000 per year to Pavilion, according to the November meeting materials. Over the long term, the pension fund plans to develop internal infrastructure to track its costs, according to minutes from its February meeting.

Despite a lack of a standardized fee benchmark, CalSTRS said it has low-cost investments compared with both its global and domestic peers.

The US’s largest public pension plan, the California Public Employees’ Retirement System (CalPERS), began its own fee disclosure program last year with an initial focus on private equity.