Calstrs' cost savings scheme

Plus: Morningstar and PitchBook's Evergreen, and Norway's real estate overhaul

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For nearly a decade, Calstrs has followed a game plan designed to lower the fees it pays to private equity managers. New data shows that it’s working well, but that doesn’t make it a useful blueprint for everyone.

The $382.4 billion fund’s collaborative model, the brainchild of former longtime chief investment officer Christopher Ailman, saved the pension over $550 million in management and carried interest fees in 2024, the largest amount since the model’s inception in 2017, according to an internal report.

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Calstrs uses a mix of co-investments, internally managed assets and separately managed accounts to avoid or negotiate down management fees and carried interest. By decreasing costs, the collaborative model drives up the pension fund’s gross profits.

“It’s been really successful,” said April Wilcox, a senior director of strategic management and operations at Calstrs. “In 2021, [Ailman] was expecting us to level out at around $300 million [in savings] a year, so it’s definitely met expectations.”

In a traditional close-ended fund, LPs typically pay managers a fee equivalent to 2% of the fund’s net asset value to cover operational costs and 20% of profits over a pre-agreed hurdle.

Over time, these fees add up. Buyout giant Blackstone—the manager Calstrs has the greatest exposure to in its PE portfolio—made $5.3 billion in fee-related earnings alone in FY 2024.

Calstrs committed at least $6.7 billion to Blackstone’s funds in its PE portfolio as of Q2 2024.

Co-investments, when the LP invests in a single asset alongside a manager, typically have low or no management fees. In 2024, Calstrs’ staff made co-investments totaling $1.5 billion with GPs, saving it a total of $276.2 million for the year on management fees and carry, the highest savings of any asset class.

The model’s total savings represent the difference between actual and expected fees.

In the case of private investments, Calstrs compares the management fees and carried interest associated with comparable investments made outside the auspices of the collaborative model. It then takes the difference and multiplies it by the value of its commitment.

When calculating savings on carried interest, Calstrs makes the assumption that the performance hurdle has been hit and again compares the fee on exit with a comparable, full-fee deal.

While great for the teachers of California, the success of the collaborative model serves as a reminder of how the private equity odds are stacked in favor of the largest institutional investors.

Most pension funds in the US don’t have the bandwidth to negotiate co-investments or manage assets in-house, which invariably means more fees going to external managers.

Calstrs’ scale gives it greater access to top-tier funds. These relationships make it easier to negotiate co-investment opportunities, as does the fact that Calstrs has the skilled staff able to handle the operational effort that direct investing entails.

Calstrs, with its 200-person investment staff and $56.7 billion PE portfolio, had an investment cost of 43.8 basis points in 2024, compared with 50.4bps for its global peers and 59.7 bps for the average US public pension fund.

“We have been focusing on building out our internal private asset team and have spent a lot of focus in the last few years on building out the expertise to be able to manage and handle the co-investments,” Wilcox said.

Calstrs also opened a satellite office in San Francisco last year and has been building the team to have greater access to co-investments from managers on the West Coast, Wilcox said.

Calstrs cannot attribute all of its annual savings on fees to the collaborative model. The fund’s asset allocation contributed meaningfully.

Last year, global equities drove most of its portfolio growth as fewer private assets were realized. Calstrs doesn’t pay fees on its global equities portfolio, which returned 17%.

At the same time, because PE performance had been down for multiple years, Calstrs saved more on carry.

Public pension funds looking to replicate Calstrs’ cost savings will have to seriously evaluate the scale of their resources and hope for a touch of that all-important luck.

As the evergreen fund market rapidly grows, allocators face a persistent challenge: how to benchmark performance in a space that doesn't neatly fit within public or traditional private market frameworks.

A new collaboration between Morningstar and PitchBook aims to address that challenge with a dedicated suite of Evergreen Fund Indexes, expected to launch in early 2026.

These benchmarks are designed for the evolving landscape of evergreen, semiliquid vehicles—funds that offer exposure to private market strategies with intermittent liquidity. With assets in US evergreen funds nearing $450 billion and projections indicating more than $1 trillion by 2030, the need for standardized performance comparisons is becoming increasingly urgent.

Unlike public equity or bond indexes, which differ in structure and liquidity, or private market benchmarks built around closed-end drawdown funds, the Morningstar PitchBook US Evergreen Fund Indexes will reflect the actual characteristics of interval funds, tender offer funds, nontraded BDCs, and REITs. The initial index family will span 10 variations, including a composite of the evergreen fund universe captured using Morningstar Direct, as well as subindexes across private equity, credit, real estate, infrastructure, and multi-asset portfolios.

—Zane Carmean, director of quantitative research

Norway's real estate shakeup: Norges Bank Investment Management, the manager of Norway's $2.1 trillion sovereign wealth fund, is changing how it makes real estate investments, according to a letter to the Ministry of Finance. Norges Bank said that weaker returns in its real estate portfolio over the past five years, compared to its equities and fixed income investments, are due to its emphasis on office and retail, direct investments and a limited geographical scope.

CPP's 2026 returns: Canada's largest pension, CPP Investments, generated a 5.4% return for Q2 FY 2026, thanks in large part to returns from its public equities portfolio and a stronger US dollar. The dollar is still weak in historical terms.