New York-based alternative asset manager Owl Rock Capital Partners LP will invest $1 billion through a direct-lending strategy for the California State Teachers’ Retirement System.
As of Aug. 31 this year, CalSTRS had $262.5 billion in assets under management, with about 10% in private equity, or $25.6 billion. This new money represents nearly 4% of CalSTRS’ commitment to private equity.
In a news release from Owl Rock, CalSTRS Deputy Chief Investment Officer Scott Chan said that the fund “views this partnership as an efficient way to generate portfolio returns on behalf of California’s educators. … Our partnership aligns with the CalSTRS collaborative model investment strategy, which focuses on leveraging our partners to reduce costs, increase investment returns and control risk.”
The West Sacramento-based pension fund declined to discuss the investment with the Business Journal, referring questions to Owl Rock.
The private equity asset allocation target of CalSTRS as of Aug. 31 this year is 10%. At that time, its actual allocation to private equity was 9.7%, according to its website. Private equity was the highest performing asset class for CalSTRS over 10 years ending in fiscal 2020, with an 11.3% return. The return on private equity in fiscal 2020 was negligible, at -0.1%.
The fund’s total return in fiscal 2020 was 3.9%, and its 10-year total return was 9.3%. The fund seeks to achieve an average total return of 7% over a long-term horizon.
The Sacramento-based California Public Employees’ Retirement System is also pursuing direct lending strategies through the use of outside investment managers.
Under its private lending program, CalPERS is eyeing making private investments in middle market companies, which it defines as having earnings before interest, taxes, depreciation, and amortization, or EBITDA, between $25 million and $100 million. That is a market that doesn’t have ready access to the public debt market, and that creates a higher-yield opportunity, CalPERS officials have said.
Owl Rock had more than $20 billion of assets under management as of Sept. 30, it said.
Source: Sacramento Business Journal
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