Semi-Annual Private Equity Program Review Summary Review As of March 31, 2016 Presented: September 14, 2016

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1 CALIFORNIA STATE TEACHERS RETIREMENT SYSTEM As of March 31, 2016 Presented: September 14, 2016 John Haggerty, CFA Managing Principal Steven Hartt Principal M E K E T A I N V E S T M E N T G R O U P B OSTON M ASSACHUSETTS C HICAGO I LLINOIS M IAMI F LORIDA P ORTLAND O REGON S AN D IEGO C ALIFORNIA L ONDON U NITED K INGDOM

2 Portfolio The portfolio is diversified by manager and strategy, with Buyouts the largest strategy exposure at 64% of the total portfolio. Expansion and Distressed Debt are the next largest exposures. United States is the largest geographic exposure at 68%. The commitments made to the 2005 to 2008 vintages represent 44% of CalSTRS total private equity commitments. There is limited remaining uncalled commitments to these vintage years, however.. 2

3 Performance Adjusting for cashflows, the portfolio had a modest positive value increase from October 1, 2015 to March 31, Compared to Q3 2015, the Program s since inception performance declined by 20 basis points to 12.9%. On a long term basis, the Program has generally outperformed the benchmarks, but underperformed in more recent periods. The Program has generated substantial value relative to public market equivalents ( PME ). 3

4 Activity The Private Equity Program experienced a net positive cash flow of $1.3 billion during 4Q2015 and 1Q2016. During the first half of 2016, Staff made $1.3 billion of commitments, approximately $0.7 billion of which was made during the first quarter. 4

5 Private Equity Program Overview 1 Strategy 2 Remaining Value ($ mm) Unfunded Commitments ($ mm) Total Exposure ($ mm) Percent of Exposure (%) CalSTRS Target (%) Target Range (%) Buyouts 11,059 6,408 17, Expansion Capital 2,482 2,025 4, Venture Capital 1, , Distressed Debt 1,991 1,125 3, Mezzanine NA NA Total Program 17,155 10,223 27, ,5 NA 4,5 1 As of March 31, Commitments to secondary, proactive and co-investments allocated based on their respective strategy. 3 CalSTRS private debt target is combined with Distressed Debt and Mezzanine. 4 PE Program Remaining Value as a percent of total CalSTRS portfolio. 5 CalSTRS current PE Target is 9%. The Long-Term Target is 13%. 5

6 The CalSTRS Private Equity Program was within the diversification ranges outlined in the Policy Statement. The Program allocation (9.2%) is at the current target (9%).The long-term target is 13%. CalSTRS investments are primarily denominated in U.S. dollars (87%), with the euro accounting for most of the balance. Primary geographic exposure is to U.S. companies, with European companies the next highest exposure. The Private Equity Program is broadly diversified across industries. 6

7 Annual Cash Flows Total Program Since 2011, CalSTRS has received strong net cash distributions. This trend has continued in the first quarter of 2016, albeit at a somewhat slower pace. 7

8 Performance Against Benchmarks As of March 31, Year 3 Year 5 Year 10 Year Since Inception CalSTRS PE Program State Street PE Index Custom Benchmark Excess vs. State Street PE Index (%) Excess vs. Custom Benchmark (%) All figures calculated as IRR. 2 The State Street Private Equity Index return was calculated by the State Street Global Exchange. 3 Custom Benchmark is a composite of: a) the Russell 3000 Index plus 300 basis points since 7/1/08, and b) the Russell 3000 Index plus 500 basis points, adjusted for three years of cash flows at the 90-day T-bill rate for periods before 7/1/08. Calculated by State Street. 4 Excess returns may not equal the difference between the CalSTRS PE Program and benchmark due to rounding. 8

9 Performance Against Benchmarks The State Street Private Equity Index is utilized to review performance over periods ten years or less; the Custom Benchmark is utilized over longer time periods. The CalSTRS Private Equity Program s overall performance has been mixed compared to its benchmarks. Compared to Q3 2015, the Program s since inception performance declined by 20 basis points to 12.9%. 9