CalSTRS considers separate accounts strategy

Pascal Villiger, a private equity portfolio manager at CalSTRS, told Reuters that separate accounts are "definitely something that I think all large institutions are seriously looking at." Earlier this week, the $145 billion group, the world's second-largest pension fund, committed $500 million to Australia-based fund-of-funds Industry Funds Management (IFM).

A CalSTRS policy proposal released in January highlighted that management fees and sometimes carried interest are lower with separate accounts. It suggested that each account be limited to 10% of CalSTRS' private equity portfolio, which means that individual commitments could reach up to $2 billion. Villiger said that 14.7% of CalSTRS' overall assets are in private equity and he expects new commitments to be $2.5-4 billion per year.

Separate accounts appeal to large-scale investors because their capital is not comingled with that of other LPs, offering more scope for customized investments. Their rise coincides with large LPs seizing the initiative in negotiations with private equity funds, driving down fees and securing more favorable terms.

Last year, Texas Teachers' committed $3 billion to separate accounts managed by Apollo Global Management and KKR, while New Jersey has $1.5 billion in three separate accounts with The Blackstone Group. Among the sovereign wealth funds, China Investment Corp. (CIC) committed $1.5 billion to a separate account within Lexington Partners' latest $7 billion secondaries fund.

Certain fund-of-funds are also increasingly pursuing managed account agreements with large LPs, which exist separately from comingled vehicles.

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• Topics
• LPs
• Investments
• California State Teachers’ Retirement System (CalSTRS)
• Teachers Retirement System of Texas
• Separate accounts
• California Public Employees' Retirement System (CalPERS)
• CIC