Fallout from the coronavirus pandemic failed to slow a push into private equity co-investments by one of California’s largest public pension plans during this year’s first half.

The $253.6bn California State Teachers’ Retirement System, or Calstrs, ramped up commitments to both co-investing alongside fund general partners and to opportunistic debt funds.

Through the latter strategy, Calstrs aims to take advantage of stressed and distressed opportunities emerging from the economic disruptions stemming from the pandemic.

In this year’s first half, Calstrs committed almost $715m to co-investments, roughly 50% more than the $475m earmarked for the strategy during the first six months of last year, according to a presentation prepared by advisory firm Meketa Investment Group. Meketa, which provides Calstrs with advice on private equity investments, is expected to make the presentation to the system’s governing board in a public meeting on 2 September; an advance copy was posted earlier on the Calstrs website.

Overall, the system’s $4.8bn of private equity commitments in the first half was down about 12.8% from the $5.5bn it pledged to private equity funds in the year-earlier period. Since July 2019, Calstrs has committed $7bn to private equity investments, the presentation shows.

While buyouts accounted for almost 70% of co-investments in this year’s first half, Calstrs also made co-investments through debt and longer-term strategies.

The debt strategies in which Calstrs co-invested include a Blackstone Life Sciences separately managed account, which got a $75m commitment, and an Ares Management co-investment vehicle, which received $250m, the presentation indicates.

In recent years, the Calstrs board approved a new private equity structure, breaking down its PE portfolio into traditional and nontraditional strategies. The traditional group includes buyout, venture capital and debt strategies. The nontraditional, which are measured against lower benchmarks and are expected to generate lower returns, encompasses longer-term strategies, special mandates and multistrategy investments, Margot Wirth, director of private equity for Calstrs, told the board during its May 2019 meeting. Co-investments run across the gamut of these strategies.

As of May 2019, co-investing was expected to double within five years as a key component of the Calstrs investment plan, according to Wirth. The system’s private equity portfolio was also expected to benefit from opportunities to co-invest alongside current fund managers across all strategies through a collaborative model, she said at the time.

The collaborative model, which Calstrs made a systemwide priority in 2017, is meant to reduce interest and fee costs and to let staff play a more active role in the pension’s investments in both private and public markets, through co-investments, separately managed accounts and joint ventures, among other techniques, according to Calstrs documents.

Source: Wall Street Journal

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