CALIFORNIA STATE TEACHERS RETIREMENT SYSTEM June 8, 2016 John Haggerty, CFA Managing Principal Steven Hartt Principal B OSTON M ASSACHUSETTS M E K E T A I N V E S T M E N T G R O U P C HICAGO I LLINOIS M IAMI P ORTLAND F LORIDA O REGON www.meketagroup.com S AN D IEGO C ALIFORNIA L ONDON U NITED K INGDOM
Overview We continue the review of the. On a Public Market Equivalent ( PME ) basis, the Program had created approximately $13.5 billion in additional value (net of fees) compared to the Russell 3000 Index. Here, we have reviewed the Program performance to State Street Private Equity Index (GXPEI), a peer benchmark. Additionally, we will review the performance of the Program s recent vintages against the public market index. 2
Summary The Program has outperformed the GXPEI by approximately $2 billion (net of fees). Each of the primary investment strategies added to out performance, while Clean Tech and Proactive detracted. The recent (2010 2015) vintages are performing similarly (on a PME basis) to other vintages that were invested during strongly rising public equity markets. 3
Limitations In the Peer Analysis The GXPEI does not represent an investable alternative, or default portfolio. This analysis does not evaluate specific decisions made by CalSTRS in constructing the Private Equity portfolio. The GXPEI structure, sector weights, and constituents are neither known nor used as a guide to construct CalSTRS Private Equity portfolio. 4
CalSTRS Performance vs. GXPEI 1990-2015 Total $1,960 Vintage Year Effect $1,624 $(1,824) Manager Effect Strategy Effect $2,161 $(3,000) $(2,000) $(1,000) $- $1,000 $2,000 $3,000 $ in Millions 5
$3.0 CalSTRS PE Program Strategy Performance vs. GXPEI $2.0 $ Billions $1.0 $0.0 Manager Effect Strategy Effect Vintage Year Effect Total -$1.0 Buyouts Venture Capital Mezzanine Distressed Debt Proactive Clean Tech Other 6
Comparison of CalSTRS Portfolio Weights with GXPEI (1) Strategy CalSTRS GXPEI Strategy CalSTRS GXPEI Small Buyout 1% 5% Mezzanine 1% 3% Mid Buyout 2% 8% Distressed Debt 11% 10% Large Buyout 18% 32% Special Lending 0% 1% Mega Buyout 35% 24% Total Debt 12% 13% Total Buyout 55% 68% CalSTRS Target 70% CalSTRS Target 15% Strategy CalSTRS GXPEI Strategy CalSTRS GXPEI Early Stage 5% 10% Equity Expansion 11% 0% Balanced Stage 2% 4% Clean Tech 1% 0% Late Stage 1% 5% Proactive 5% 0% Total Venture 8% 19% Liquidation Portfolio 0% 0% Co-Investment 7% 0% Secondary 1% 0% CalSTRS Target 5% Total Other 25% 0% (1) Based on invested capital. Sums may not add due to rounding. 7
KS-PME Multiples From Time Zero CalSTRS Vintages 2010-2014 1.20 1.10 KS-PME 1.00 0.90 0.80 0.70 0.60 2010 2011 2012 2013 2014 All Vintage Years Average 0.50 0 0.25 0.5 0.75 1 1.25 1.5 1.75 2 2.25 2.5 2.75 3 3.25 3.5 3.75 4 4.25 4.5 4.75 5 Number of Years 8
KS-PME Multiples From Time Zero For CalSTRS Vintages During Strong Public Equity Markets 1.40 1.30 KS - PME 1.20 1.10 1.00 0.90 0.80 0.70 1995 1996 1997 1998 2003 2004 All Vintage Years Average 0.60 0 0.25 0.5 0.75 1 1.25 1.5 1.75 2 2.25 2.5 2.75 3 3.25 3.5 3.75 4 4.25 4.5 4.75 5 Number of Years 9
Private Equity Industry Topics How will PE industry unfold over the next 5-10 years? How is PE integrated into the global economy? What international opportunities exist? Key man risk and succession planning. SEC focus on GP restructurings. Increasing use of separate accounts. 10
Topics for Next Presentation Discussion of GXPEI for benchmarking Review of Private Equity Investment Policy and processes Pacing Study Investment Sourcing Alternative structures (separate accounts, co-investments) Fee transparency Investment monitoring 11