Private Equity Portfolio Performance

• Private Equity Portfolio Performance as of September 30, 2012

Return Since Inception

• 13.38 percent as of September 30, 2012

Measuring Portfolio Performance

CalSTRS uses the dollar-weighted internal rate of return (IRR) to measure portfolio performance, as recommended by the Association of Investment Management and Research.

The CalSTRS IRR calculation method may differ from the methods used by the General Partner or other Limited Partners.

CalSTRS maintains records, including the IRR, for each limited partnership.

Factors Influencing IRR Calculations

There is no industry-standardized method for valuation or reporting, which makes comparisons of these numbers difficult. All of the following can create differences in IRR calculations:

• Cash-flow timing
• The accounting treatment of carried interest
• Partnership management fees
• Advisory fees
• Organization fees
• Other partnership expenses
• Sale of distributed stock
• Valuations

In addition, the purchase of secondary interests makes for unique comparison problems due to the specific pricing and timing characteristics of the transaction when contrasted with the Limited Partners Investment.

IRR Over Time

The actual IRR performance of any limited partnership is not known until the final liquidation of the partnership, typically over 10 to 12 years. Until the liquidation takes place, the IRR is only an interim estimated return.

The IRR calculated for a partnership in the first three years of its life are relatively meaningless given the "J-curve effect." The J-curve phenomenon is the effect of the cash-flow behavior of a partnership. It can be summarized as the first year's investment expenses of investing in a fund that has yet to harvest its capital gains in the future. This normally translates into a negative IRR in the early years of the fund. The plot of the partnership values over time generally resembles a letter J.

Performance Report Disclaimer

Please note that none of the information contained in the Private Equity Portfolio Performance Report has been reviewed or approved by the General Partners of the funds.