CalSTRS in talks with Lazard on RE portfolio sale

California State Teachers’ Retirement System, the world’s largest educator-only pension fund, is considering selling fund stakes from its private equity real estate portfolio, Secondaries Investor has learned.

Sacramento-headquartered CalSTRS, which holds $25.7 billion in real estate assets, is working with Lazard to identify assets to sell, according to two sources familiar with the matter, although it is unclear whether Lazard has been formally hired yet. It is understood the process, which has yet to formally launch, is likely to involve closed-ended and value-added opportunistic funds.

It is still unclear how much the pension plan is planning to put up for sale, but one of the sources noted that it could offer a portfolio worth about $1 billion, while the other said it could break it down into several smaller portfolios in the hundreds of millions of dollars.

CalSTRS had said in its investments branch business plan for fiscal 2016-17 that about $4 billion of its real estate portfolio, representing about 15 percent, is held in pre-crisis closed-end funds.

“These older funds have impaired our performance; staff will aggressively push for liquidation over the next three years,” the plan noted. CalSTRS will also aim to liquidate non-strategic assets and target investments to lower risk strategies, as well as review relationships to ensure alignment of interests and focused strategies, according to the plan.

CalSTRS was slightly underweight in real estate, with 13.3 percent of its portfolio invested in the strategy as of 30 September. Its target allocation is 14 percent.

The pension holds stakes in closed-ended real estate funds including Starwood Capital Hospitality Fund II, Lone Star Fund VI and JER Europe Fund III, according to CalSTRS’ portfolio holdings as of 30 June.

CalSTRS manages $193.2 billion in assets on behalf of 896,000 public education professionals. The pension is an investor in secondaries funds, previously committing $250 million to Ardian’s ASF VII and $150 million to Coller Capital’s Coller International Partners VII.

A CalSTRS spokesman declined to comment on its sale of real estate fund stakes, saying the pension’s policy was to only report on such deals after a purchase or sale has occurred. Lazard did not return a request for comment.