CalSTRS plans up to $150m per year in sustainable PE commitments

The investments will be sourced through the $283bn pension's private equity co-investment programme if approved as early as March.

The California State Teachers’ Retirement System staff wants to make up to $150 million a year in private equity co-investments focused on “low-carbon solutions” to the climate crisis as part of its sustainable investments strategy.

“The transition to a low-carbon economy is creating opportunities to invest in solutions that are going to help the world de-carbonise,” said Kirsty Jenkinson, the head of the pension’s sustainability program, at its January investment committee meeting.

A CalSTRS spokeswoman told sister publication Buyouts that in private equity, this can include energy, technology-enabled resource efficiency, water and waste management, land or agriculture management and food security.

Jenkinson’s team will collaborate with the private equity co-investment team to leverage its 140 existing manager relationships for opportunities. CalSTRS’ burgeoning co-investment programme is a key part of its “collaborative model” for bringing more investments in-house.

Director of private equity Margot Wirth said once the deals were found, a joint committee made up of members of both teams would work to assess possible investments. CalSTRS said each investment will be held to the same due diligence standards as its asset class.

“The concept here is to collaborate and use our existing resources and relationships to help source deals that would be appropriate for the portfolio,” Wirth said to the committee.

The private equity target is one part of a private portfolio the sustainable investing team is proposing CalSTRS adds to its wider sustainable investing initiative. The private portfolio will also include real estate and inflation-sensitive investments.

The January presentation was a first reading. Staff will bring the proposal back to the committee’s March meeting for a second reading and possible vote.

CalSTRS, like many public pension systems, has received pressure from activist groups to divest from fossil fuels, as sister publication Buyouts has reported. The pension has resisted those calls, noting on its website that divestment could hurt its return objectives and limit its ability to influence companies.

The pension has had a sustainable public equity investment portfolio since 2007. The team is also proposing the public and private sustainable portfolio be limited to taking up 5 percent of the fund’s total asset allocation. As of 31 December, the fund’s total value was $283.4 billion.