Was CalSTRS' $851m in 2015 PE costs worth it?

The $851m includes $516m in private equity carried interest, which represented 83% of all carried interest awarded to its external fund managers across asset classes in 2015.

The California State Teachers’ Retirement System (CalSTRS) paid $851 million in private equity fees and expenses in 2015, but since it didn't break down its fees and expenses by specific fund, it's difficult to measure the cost effectiveness of its private equity investments.

That total included $516.4 million in carried interest, or 60 percent of all private equity-related costs and expenses.

“The real question is not how much CalSTRS paid in carried interest but what were CalSTRS returns like, compared to other comparable investors,” placement agent Probitas Partners managing director Kelly DePonte told Private Equity International. “You select managers based on returns you expect them to generate, not to target an amount of carry paid.”

According to its first comprehensive annual investment cost report, CalSTRS’ profit sharing awarded to its private equity managers accounted for 83 percent of all carried interest paid out across asset classes.

Including portfolios in private equity, real estate, inflation sensitive, corporate governance, and innovation and risk, the total carried interest – investment profits realised by external fund managers – reached $622.8 million.

Across all asset classes, the pension fund’s investment portfolio cost $1.4 billion in 2015 and had more than 600 partnership investments, separately managed accounts, joint ventures and co-investments.

As of 31 December, CalSTRS’ private equity portfolio had a net asset value of $16.1 billion, the report said.

CalSTRS’ carried interest disclosure comes amid a private equity industry-wide push for greater transparency in fees and expenses. After another US public pension fund giant, the California Public Employees’ Retirement System (CalPERS), admitted in April 2015 that it had no idea how much in carried interest it paid its external fund managers, discussion around fee transparency reignited.

Soon after, CalPERS produced its first-ever report on carried interest awarded to its private equity managers, as reported by Private Equity International, while the Institutional Limited Partners Association released a fee reporting template at the beginning of 2016 in an effort to standardise fee-related data reporting across the industry.

The pension fund hired Pavilion Alternatives Group to calculate the various fees and expenses included in this report. Pavilion used a modified version of the ILPA reporting template, according to the meeting document.

As of 31 December, the total net asset value of CalSTRS’s investment portfolio stood at $186.1 billion.

A CalSTRS spokesman was not available to comment.