CalSTRS Goes Public with Private Equity Returns

December 13, 2002 (PLANSPONSOR.com) - The nation's third largest public pension system has released performance data on about half of its private equity investments.

Under pressure from the San Jose Mercury News, the California State Teachers’ Retirement Fund (CalSTRS) last week decided to release the performance results of the venture capital and other private funds in which it invests (see  CalSTRS Agrees to VC Data Release ).

Half “Way”

The nation’s third largest pension fund said it disclosed investment returns – known as internal rates of return, which CalSTRS calculates on its own – for 64 of about 126 private equity funds in its $91 billion portfolio.   The fund had sought waivers from the confidentiality agreements it signed with fund managers – and only released information for those investments where the general partners approved, according to Dow Jones.

CalSTRS made the move in response to a Public Records Act request filed in October by the Mercury News, after CalSTRS initially refused to release the data. The paper argued that state employees have a right to know how their retirement funds are performing.   Last month California State Judge James Robertson held that similar data on investments held by sister state pension fund CalPERS (California Public Employees’ Retirement System) was “not a trade secret and is disclosable.”   Additionally, the judge ruled CalPERS’ internal grading of funds, how they are performing relative to expectations, can also be disclosed (see  CalPERS Must Disclose VC Information ).

Varied Returns

As of October 31, CalSTRS had $4.45 billion of its $91.3 billion in assets invested in private equity, roughly 4.9% of the total portfolio.   Of the 64 for which returns were disclosed, about a third are showing negative results, some of them seriously so, according to a Mercury News report.

Still, of the 22 negatively performing partnerships, most of them were firms that raised money between 1998 and 2001. Noting that most partnerships lose money for their first three or four years, the report also noted that 1999 and 2000 were bad years to invest in private companies, many of which were caught in the tech “wreck.”   Additionally, the net returns were impacted by management fees, which kick in sooner than returns on the investments.

The Mercury News reports that one partnership, Boston Ventures V, which raised money in 1996, had a good year, but still has lost 7.73% annually since inception, while TPG Partners III, which raised money in 2000, has managed to post a 2.43% annual positive return.   Dow Jones notes that another Boston Ventures fund that raised money in 1989 posted an IRR of 18.92%.   That same report cites a Blackstone Capital Partners fund from 1997 with an IRR of 9.13%, while a Blackstone fund from 2000 posted a negative return of 26.89%.

Next Steps

CalPERS had refused the request under the state’s Public Records Act, saying that releasing such data now would “offend the firms it invests in”, and therefore hurt CalPERS’ investor status.   The ruling did leave open a three week window for investment partners seeking such confidentiality to show the court why their data should remain classified.

California state Treasurer Phil Angelides, who is on the board of both CalPERS and CalSTRS, said that he’d instructed his staff, with a Monday deadline, to come up with “best practices” of what more to disclose, according to the Mercury News.   Angelides said he would implement the staff recommendation he gets regardless of what the judge in the CalPERS case decides, according to the report.

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