CalSTRS discusses limits for managed accounts

The $153bn retirement system may set a $500m maximum on individually managed accounts, according to an investment policy proposal.

The California State Teachers’ Retirement System has specified changes to its investment policy that would allow for the creation of managed accounts for private equity, according to materials for its 4 June investment committee meeting.

Formal consideration of managed accounts began in February. The initial proposal was the source of “abundant discussion”, according to CalSTRS documents. As such, the committee will not be voting on the revised proposal at Monday’s meeting in order to allow for further discussion. 

Under the revised investment policy, the managed accounts would be similar to those organised by peer institutions like the California Public Employees’ Retirement System, which set up its own $500 million separate account with The Blackstone Group earlier this year. 

The revised policy permits CalSTRS to create managed accounts exclusively with established managers with proven track records. Managed accounts would be no larger than $500 million for firms with which the pension system has an existing relationship and $250 million for new relationships. General partners would have to commit at least 1 percent of the managed account’s capital, according to the proposal.

The limitations are similar to those in place for CalSTRS’ commitments to commingled funds – which include capital from other investors. Investment staff also added definitions for the terms “separately managed account” and “commingled partnership fund” to its glossary of terms in order to distinguish the two. 

CalSTRS dedicates 14.3 percent of its $153 billion investment portfolio to private equity. The pension system has a 12 percent target for the asset class, in the middle of its 9 percent to 15 percent range. 

In addition to CalPERS, several other US pensions recently have set aside commitments for separate accounts. The New Jersey Division of Investment formed a $1.8 billion “special relationship” with Blackstone in December, giving the firm a mandate to invest across strategies like buyout, credit and real assets. In November, the Teachers’ Retirement System of Texas gave $3 billion each to Apollo Global Management and Kohlberg Kravis Roberts for investments across asset classes.