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Portfolio > Alternative Investments > Hedge Funds

CalSTRS Considers Hedge Funds

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SACRAMENTO, Calif. (–Hedge funds have made the investment top-five list at the California State Teachers’ Retirement System. CalSTRS staff and its investment consultant, PCA, ranked allocation to hedge funds third among ideas for portfolio enhancement–behind fixed-income portfolio reviews and expanded equity management.

The staff came up with the ideas in a brainstorming meeting in preparation for Wednesday’s (Dec.1) meeting in which the pension funds’ trustees are to discuss adjustments to the portfolio. Trustees plan to assess the risk factors and return potential of each type of new investment under consideration.

Trustees are considering whether to add market neutral hedge funds to the public pension fund’s US$119 billion investment portfolio. The proposal comes as part of an investment committee project that outlines income enhancement ideas needed to help the fund meet its 8% assumed annual rate of return.

Officials also are considering using futures based-collars, index swaps and other derivatives and butterfly spread trading strategies to help boost returns.

According to a chart put together by the staff, market neutral (long/short) equity funds would be used as part of an external equity management program. Such a move would deliver a high-return potential along with higher risk for the portfolio.

Rounding out the five ideas generated by the staff were niche real estate strategies and rebalancing strategies.

The pension fund current target allocation is: 41% U.S. stock; 20% non-U.S. stock; 26% fixed income; 6% real estate; 6% private equity; and 1% cash. The committee didn’t specify the size of any potential hedge fund allocation.

Contact Bob Keane with questions or comments at: [email protected].


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