CalSTRS considers boosting PE target

The nation’s second largest pension system sees potential for greater returns and adding to sustainable investing by increasing its allocation to private equity.

California State Teachers’ Retirement System’s investment committee will consider increasing its target allocation to private equity by 1 percent at its board meeting this Thursday.

Large pension systems have been mixed about their PE allocations and pacing plans as they battle overexposure and slowing distributions. While many LPs see rocky times ahead and are reducing how much they plan on committing to private funds, others remain bullish about private equity’s potential, especially as the market has cooled and prices have fallen.

With more than $307 billion in assets under management, CalSTRS is the nation’s second largest retirement system. Its staff is recommending an increase to its long-term target allocation to private equity from 13 percent to 14 percent. A discussion on the recommendation is scheduled for the system’s May 4 investment committee meeting.

The recommended allocation changes would reduce the system’s target to global public equity by 4 percent, the note says.

CalSTRS has been an active investor in private equity funds in recent years. It made commitments to 28 vintage-2022 funds, including three venture capital vehicles managed by Bessemer Venture Partners, Congruent Ventures and Oak HC/FT, according to Venture Capital Journal research. The previous year, the pension system made commitments to 36 vintage-2021 funds, including seven VC funds managed by GGV Capital, IVP and New Enterprise Associates.

According to the note, the staff believes the increased allocation to private equity provides more opportunity to generate alpha on top of gains from the premium associated with illiquid assets.

CalSTRS staff said the proposed uptick in private equity allows for more investment in the system’s Sustainable Investment Stewardship Strategies portfolio. The $9.4 billion SISS program focuses on sustainable investments and includes support of the system’s goal to reach a net-zero portfolio.