CalSTRS increases delegated authority limits for PE allocations

Oscar Geen
31 October 2017

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US pension fund California State Teachers' Retirement System (CalSTRS) has announced increases to its delegated authority limits for PE investments, as it looks to adapt to the evolution of the asset class.

The changes affect LP investments, secondary market transactions, co-investments, direct investments in GPs and separately managed accounts.

The maximum size for follow-on commitments in funds of existing GPs has been increased 50% from $500m to $750m. For new GPs, these limits went up from $250m to $400m.

Maximum co-investment size has increased 100% from $125m to $250m and direct investment in a GP has changed from 10% of the whole private equity portfolio to $250m.

Separately managed accounts limits have also been increased, from $500m to $750m for an existing GP and $250m to $400m for a new GP.

For secondary market transactions, the limit was previously the lesser out of $100m or 20% of the fund for all investments. There is now a distinction between diversified and non-diversified commitments and also between secondary transactions of LP interests or separately managed accounts and secondary transactions of co-investments.

For secondary transactions in diversified LP interests of separately managed accounts, the limit is now $1.5bn and $750m for non-diversified commitments.

For secondary transactions of co-investments, the limit is $500m for diversified and $250m for non-diversified.

Limits for individual staff members have also changed in line with the broader changes – the chief investment officer and deputy chief investment officer are the only positions with the entire $1.5bn delegated authority.

CalSTRS announced the changes in its latest investment committee meeting. The LP said the changes reflect the considerable evolution of private equity as an asset class and the secondary market in particular, noting that the delegated authority limits were last updated in 2006.

Additionally, it recognises the relatively short period of time during which many co-investments need to be approved and now allows for the use of a co-investment adviser to help with this process.

As of September 2017, CalSTRS had assets under management worth €215bn and a private equity allocation of 8.05%, according to unquote" data.