CalSTRS Selects McKinsey & Company as Alternative Investment Consultant
Sacramento, CA – The California State Teachers’ Retirement System today selected McKinsey & Company as alternative investment consultant to its Investment Committee.
McKinsey & Company was chosen through a competitive process to work closely with the committee to monitor and comment on the AI portfolio performance and policies. McKinsey and Company will not review specific transactions.
“I couldn’t be happier to have McKinsey helping us move into the future,” said Christopher J. Ailman, CalSTRS chief investment officer. “The CalSTRS private equity portfolio will grow into one of the largest in the world and it’s fitting that we partner with McKinsey, a world renowned, world-class business consultant.”
Selection of McKinsey & Company is part of an extensive competitive process CalSTRS is conducting to identify consultants to perform a variety of functions. The consulting duties were split between a single consultant to the investment committee and program advisors whose duties would include recommending partnerships in the U.S. and Europe. The split was done to avoid potential conflicts of interest and in anticipation of future growth of the AI portfolio. The process to name the program advisors is expected to continue for several more months.
In addition, independent fiduciaries have been selected to perform due diligence on prospective co-investments and secondary investments and assist and advise the CalSTRS staff. These firms, selected in late May, are Ernst & Young Corporate Finance, LLC; Houlihan Lokey Howard & Zukin Financial Advisors, Inc; KPMG, LLP; and Standard & Poor’s Corporate Value Consulting.
The expiration of the current general AI consultant contract with Pathway Capital Management, LLC sparked the consulting search. The start date of the McKinsey’s contract depends on the conclusion of contract negotiations.
The AI portfolio contains direct and co-investments, limited partnerships and secondary interests. Last October, the AI asset allocation was increased from 5 percent to 8 percent of CalSTRS’ total assets, which could generate an AI portfolio of $12 billion by 2006. The alternative investment portfolio now has a market value of $4.4 billion, with committed values of $8.8 billion. It has generated a 23.1 percent compounded annual rate of return since its inception in 1988.
CalSTRS, at $100 billion, is the nation’s third largest pension fund. It administers retirement, disability and survivor benefits for California’s public school educators in grades kindergarten through community college, serving approximately 687,000 members and benefit recipients.