CalSTRS Re-Ups with PCCP
Submitted April 1, 2010, 11:18 AM
The California State Teachers’ Retirement System has invested $15 million in a $105.5 million follow-on fund raised by money manager PCCP to recapitalize a former Lehman Brothers private-equity mezzanine fund.
CalSTRS made a $100 million commitment to the Lehman Brothers fund in 2005. In December, PCCP, which has offices in San Francisco, announced that it had acquired the general partnership interests in the fund, as well as another, from the Lehman bankruptcy estate. PCCP has extensive experience in real-estate workouts. Together the Lehman funds had more than $2 billion in assets. The funds were renamed PCCP Mezzanine Recovery Partners I and II. CalSTRS invested in the first.
The pension fund made only one other real estate commitment during the fourth quarter. This was another follow on with an existing manager, The Fortress Group out of New York. The pension fund allocated $21.3 million to the Fortress Florida Pref Fund.
The pension fund made the PCCP investment based on the recommendation of its independent real estate fiduciary, Sacramento-based Bonuccelli & Associates. CalSTRS considers the investment tactical or non-core. The targeted return for this kind of investment is 9 percent net of fees.
CalSTRS holds the investment in its specialty category in the real estate portfolio. CalSTRS uses the investment category to focus on a specific product like office buildings, hotels or apartments, or on a strategy like mezzanine debt.
CalSTRS is currently invested in real estate significantly below its targeted allocation. The pension fund has an existing real estate portfolio valued at $12.7 billion, or about 9.5 percent of its $134 billion in total plan assets. The targeted allocation for real estate is 12 percent.
CalSTRS has taken a very conservative stance toward new real estate commitments. According to pension-fund investment staff, its transaction volume continues to be light primarily due to the volatility and uncertainty of market conditions. There has been no indication from the investor when this is going to change.
CalSTRS had 847,833 members and beneficiaries as of June 2009 and paid benefits of $8.6 billion for the year preceding.
