CalSTRS taps INVESCO to seek ‘next generation’

The third largest public pension fund in the US has selected INVESCO Private Capital to invest $100m in a fund-of-funds targeting new private equity firms.

The California State Teacher’s Retirement System has selected INVESCO Private Capital to manage “CalSTRS New and Next Generation Manager Fund”, a $100 million fund-of-funds targeting newly established private equity firms led by industry veterans or seasoned partnerships raising their first institutional fund.

INVESCO was reportedly selected from 10 other firms in a competitive process that began over a year ago. The firm will invest the initial $100 million fund over a five year period.

In an interview with PrivateEquityOnline, INVESCO general partner Katie Cattanach said, “One of the key factors that makes [investing in new and emerging funds] attractive relates to the issue of access. I liken it to a baseball farm team, giving us the opportunity to get to know these groups and develop a relationship. If they prove out, there’s a loyalty factor and a place at the table when they go on to raise larger funds.”

Cattanach said that INVESCO will invest in approximately 20 funds with a typical investment in the range of $5 million to $6 million.

In addition to traditional buyout and venture capital partnerships, the fund will most likely look towards specialized funds run by women or minorities. Cattanach noted that the fund is mandated to invest half of its dollars in firms that reflect the demographic diversity of the state of California.

“Emerging” manager funds have recently become popular amongst institutional investors as they look to smaller and more specialized firms to seek out superior returns. Other state pension funds that have or are in the process of developing “emerging” manager funds include Colorado’s PERA, New Mexico’s public employees pension, the New York City Retirement Systems, the North Carolina state treasury, the Connecticut state treasury, the Los Angeles County pension fund, Massachusetts PRIM and New York State Teachers.

INVESCO Private Capital, with offices in New York, Denver and Palo Alto, has approximately $1.9 billion of discretionary assets under management. The firm is a division of publicly traded financial company AMVESCAP, a $360 billion international financial services group.