CalSTRS ups private equity allocation to 13%

The $170bn pension has set a new private equity target following a year-long internal asset and liability study.

The California State Teachers’ Retirement System edged up its target private equity allocation to 13 percent from 12 percent, according to a statement from the pension system.

The new asset allocation will take at least three years to execute and plans for implementing it will be developed in the upcoming months, CalSTRS said. CalSTRS also upped its long-term real estate allocation target to 13 percent from 12 percent. The new target allocations follow CalSTRS’ year-long asset and liability studies that look at risk and return profiles every three years.

“[T]this was a critically important one, examining the effectiveness of our response to the global financial crisis of 2008-09,” CalSTRS investment committee vice chair Sharon Hendricks said in the statement. “Our examination of the market allows us to adapt and to coax consistent long-term growth from a chaotic environment.”

The investment committee considered overall inflation and the fluctuation of returns over time during the study, including the need to meet a long-term investment return rate of at least 7.5 percent. 

“Strategic asset allocation is the single most important factor in determining the overall rate of return for investments over the long term,” CalSTRS chief investment officer Christopher Ailman said in the statement.

CalSTRS posted a 2013 fiscal year private equity return of 13.9 percent and an overall investment return of 13.8 percent. The system outperformed its 2012 fiscal year returns; though CalSTRS director of private equity Margot Wirth told Private Equity International the system doesn’t focus on one-year private equity benchmarks for the longer-term asset class. 

CalSTRS recently committed $100 million to Palladium Equity Partners’ fourth fund and $150 million to Ares Corporate Opportunity Fund IV, according to PEI’s Research and Analytics division.