CalSTRS hikes PE allocation

The private equity portfolio has $3.52bn committed to distressed debt and mezzanine funds. 

The California State Teachers’ Retirement System increased its target allocation for private equity from 12 percent to 13 percent on Wednesday, according to a statement. The $170 billion retirement system’s private equity portfolio includes allocations to distressed debt and mezzanine strategies.  

As of 30 June, CalSTRS had a 12.8 percent allocation to private equity, of which a combined $3.52 billion had been dedicated to distressed debt or mezzanine funds, according to a second quarter investment report. The $2.78 billion distressed portfolio had generated a 9.68 percent internal rate of return and 1.39x multiple since inception. The mezzanine portfolio had generated a 13.2 percent IRR and 1.56x multiple.

CalSTRS made two commitments to distressed debt strategies during the second quarter. The retirement system committed $50 million to Ares Capital Europe. It also invested €38.9 million in an “Ares Cred Strat Fund” that will pursue direct lending in the European market.

“Strategic asset allocation is the single most important factor in determining the overall rate of return for investments over the long term,” said CalSTRS Chief Investment Officer Christopher J. Ailman in a statement. “By adopting this long-term asset mix, the committee reaffirms the plans we established after the financial crisis of 2008. To date, our performance–in the top 14th percentile over three years–demonstrates it’s been a good approach.”

In addition to the changes made to its private equity allocation target, CalSTRS also increased its target to real estate strategies from 12 percent to 13 percent, according to the statement.