CalSTRS investment committee approves private equity policy to allow limited leverage and raise co-investment fiduciary threshold

The California State Teachers Retirement System's (CalSTRS) investment committee voted unanimously to adopt a private equity policy revision that adds a principles-based leverage framework and raises the threshold for required independent fiduciary review on co-investments.

Margo Worth, CalSTRS director of private equity, told the committee the policy fills a gap: private equity previously had no explicit leverage guidance while other private asset policies did. Under the adopted change, limited use of leverage is allowed only in accordance with cases and limits established by the CIO, and staff said leverage would be applied conservatively and in specific, specified use cases.

The policy also changes the long-standing independent fiduciary requirement for co-investments. "We have built a world-class co-investment team and have moved from doing a handful of co-investments to a couple hundred," Worth said, summarizing staff's rationale for granting more discretion to internal experts. The policy retains independent fiduciary review for co-investment transactions above $250,000,000; below that level staff may proceed without a third-party independent fiduciary but may still call one in on a case-by-case basis.

Committee members pressed staff on the $250 million threshold. Tad Ferguson and others said the figure was meant to strike a balance: it is above recent transaction sizes, keeps some "training wheels" in place and avoids a blanket removal of external checks while improving CalSTRS's competitive position for off‑market co-investment opportunities.

Sharon Perrault (motion) and Mr. Tang (second) moved to approve the policy as presented. The committee took a roll-call vote; the motion passed with all members voting aye (Ms. Perrault; Ms. Gallegos; Mr. Tang; Ms. Yamamoto; Ms. Bradford; Ms. Hendricks; Mr. Gunning; Ms. Sanders; Mr. Henning; Chair Keeley).

Chair Keeley said staff would continue to monitor the program and revisit the threshold as average transaction sizes evolve. CalSTRS staff and consultants emphasized that the change does not remove discretionary safeguards: staff retained the ability to obtain independent fiduciary review for transactions below $250 million when warranted.

Next steps: staff will implement the policy, reflect the changes in governance documentation, and monitor co-investment execution and staffing capacity. Committee members noted the matter will remain on future agendas for oversight and possible recalibration.