Irvine Firm to Manage CalSTRS Portfolio

The California State Teachers Retirement System said Friday that it has selected an Irvine firm to manage a $2.5-billion portfolio that is one of the system’s riskier investments.

CalSTRS said it will negotiate a final contract with Pathway Capital Management L.P. for services over the next three years, with options for two one-year extensions.

Pathway was selected over nine other companies, including Abbott Capital Management, which has held the alternative investment advisory contract since the portfolio was created in 1988.

Pathway’s bid included fees that were 50% less than Abbott’s, said Elleen Okada, deputy chief investment officer. She wouldn’t disclose any figures until a final contact is signed.

The portfolio, consisting of 55 limited partnerships that invest in young, promising companies, was created in the 1980s to seek a higher return than the market could offer.

The portfolio, which typically features 10-year investments, has been giving CalSTRS an average annual return of 20%, Okada said.

The portfolio represents a small percentage of the total $68.6 billion in assets that CalSTRS manages as the retirement system for more than 548,000 active and retired teachers and their beneficiaries.

Pathway executives weren’t available for comment.