CalSTRS: Carry is ‘not a very meaningful number’

The California State Teachers’ Retirement System (CalSTRS) sees the recent firestorm around its nondisclosure of carried interest payments as part of cyclical pressure in the private equity industry, the pension fund’s spokesman Ricardo Duran told sister publication Private Equity International.

“Private equity disclosure comes up from time to time and this just happens to be one more aspect of it,” Duran said in a telephone interview. He noted that carried interest is “not a very meaningful number for us; our private equity performance is more meaningful for us.”

In mid-July CalSTRS admitted it had not been recording and disclosing payments it made to fund managers since 1988, when it first invested in private equity.

“I think it’s a mischaracterization of what we’re doing,” Duran said. “Claiming we failed to record payments made to private equity managers is untrue. We track every dollar that goes into and out of the funds.”

Carried interest is not as meaningful as other payments to GPs such as monitoring fees, Duran said, noting that he believed the pension fund reported those figures as part of fees to managers.

Duran said he is aware of larger funds that track and disclose carried interest and that CalSTRS is looking for a software system to help the pension fund record fees “more explicitly”, and for tools to track fees more precisely.

CalSTRS, which manages $193.10 billion in assets, currently has commitments in 210 funds, according to PEI’s Research & Analytics division. It manages a $19.31 billion private equity portfolio.

According to the CalSTRS Comprehensive Annual Financial Report for the fiscal year ended June 30 2014, it paid $171.84 million in investment management fees to 55 external managers that year. Its investment expenses in private equity amounted to $10.32 million between July 1 2013 and June 30 2014, equivalent to 4.6 percent of total expenses in that year. However, it stated certain expenses, including carried interest and management fees related to private assets, were not included in that value.

CalSTRS’ disclosure followed an acknowledgement in April from the California Public Employees’ Retirement System (CalPERS) that it had not been keeping track of carried interest paid to managers. Earlier this month, CalPERS said it will start to release data on performance fees in the third quarter.

“We’ll have to see how the conversation moves,” Duran said of the ongoing debate around pension fund private equity fee reporting.

For more coverage on the fee transparency debate, see the August issue of pfm.