CalSTRS commits $743 mln to alternatives in Q1: Buyouts

The California State Teachers’ Retirement System committed $743 million to private equity investments during the first quarter, with a $200 million commitment to Clayton Dubiler & Rice Fund IX drawing the single largest pledge, according to an investment report published on the pension agency’s website, peHUB sister publication Buyouts reported.

CalSTRS renewed ties with existing manager Clayton Dubilier & Rice, as the buyout firm eyed a $5 billion target for its ninth flagship fund, aimed at control buyout investments in North America. That pool has since closed with $6.4 billion in committed capital, according to a spokesman.

The pension system also committed $100 million to M2 Private Equity Fund-of-Funds II LP, which has a $400 million target. That pool from Chicago-based Muller & Monroe plans to focus investments on emerging and niche private equity funds targeting the lower middle market.

CalSTRS also pledged $100 million to Castlelake III LP, which is targeting $1.4 billion to invest in mid-market distressed assets and corporate distressed securities. That fund is managed by Minneapolis-based Castlelake, which changed its name from TPG Credit Management last August.

TPG Capital’s TPG Opportunities Partners III LP, a distressed debt fund targeting $2.4 billion, drew a commitment of $125 million from CalSTRS.

On the European front, CalSTRS committed about $126 million to Permira V from Permira Advisers as an add-on investment. It also pledged about $67 million to Alchemy Special Opportunities Fund III, a distressed debt vehicle focused on special situations in mid-sized companies from Alchemy Partners.

Finally, CalSTRS committed $25 million to Spectrum ER Investors LLC, a co-investment with sponsor Spectrum Equity. In February, Spectrum announced that Extreme Reach, a provider of video advertising and talent technology for TV, web, mobile and other video media, purchased the TV business of Digital Generation Inc for $485 million in cash.

All told, the CalSTRS private equity holdings made up 11.9 percent of the asset allocations in the retirement system. That was below its 2013-2014 target and long-term target of 13 percent.

The market value of CalSTRS holdings stood at $183.4 billion as of March 31, up from $165.8 billion on June 30, 2013.

During the quarter, CalSTRS received $1.6 billion in distributions from its private equity investments. As of March 31, CalSTRS reported an investment multiple of 1.52x for its buyout portfolio for a net IRR of 12.06 percent over the life of its investment program for the asset class.

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