CalSTRS Adds Venture Partnership to Collaborative Model

The pension tapped Sapphire Partners to lead its emerging manager efforts.

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Illustration by II

The California State Teachers Retirement System has a new partner for its emerging manager program.

Invesco, which had been managing the $320 billion pension plan’s emerging manager fund, started to wind down that offering, prompting a year-long search for a new partner. The total mandate — $1.4 billion — has gone to Sapphire Partners, the LP arm of $11 billion tech investment platform Sapphire Partners.

“Given the nuances and aspects of early-stage venture, we should focus on a group that has dedicated and proven expertise like Sapphire,” said Rob Ross, a portfolio manager for CalSTRS’s private equity investments.

The partnership comes at an important time in the investment fundraising cycle. Some asset allocators are strapped for cash due to fewer private equity distributions and being overweight alternatives. As a result, emerging managers are having a tougher time raising capital.

Sapphire Partners will oversee all five of CalSTRS’s “new and next-generation manager funds.”

“With many LPs constrained on allocations, Sapphire Partners is excited to be an active and supportive partner for emerging managers seeking to fundraise in this environment and has invested in emerging managers since the strategy’s inception nearly twelve years ago,” according to the deal’s announcement.

“We’re super committed to emerging managers,” Ross said.

Although much of the $1.4 billion in those funds has already been put to work, Sapphire will oversee the investment of the remaining $80 million. According to Ross, this move is aligned with CalSTRS’s broader implementation of its Collaborative Model.

“Part of the concept of the Collaborative Model is managing more money internally, and outsourcing to areas that we don’t,” he said. “In this case, emerging manager venture capital is an area that we decided that it made sense to collaborate with someone.”

“The deal provides our team more expertise and leverage,” Ross said. “We’re managing a really big program. We can’t always give the attention that we want to.”

In 2020, CalSTRS CIO Chris Ailman launched the Collaborative Model, an effort for CalSTRS to reduce its costs over the next ten years. The pension fund’s plan was to insource some of its investment efforts and to partner with other institutions to lower costs.

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