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Portfolio > Asset Managers

CalSTRS may move 12 percent of retirement portfolio into lower-risk assets

By James Nash

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(Bloomberg) — The California State Teachers’ Retirement System, the second-largest U.S. pension fund, may move as much as 12 percent of its portfolio into comparatively safer global stocks, infrastructure and Treasuries, according to documents being reviewed by its investment committee Wednesday.

The West Sacramento-based fund is exploring ways to hedge against volatile stocks that compose more than half its $191.4 billion portfolio after the global financial crisis wiped out more than 10 percent of its value between 2008 and 2010.

Consultants are to discuss a so-called “risk mitigation strategy” with the investment committee today, although no decision is expected. They note it would take years to develop the new portfolio, which could equal as much as $23 billion based on CalSTRS’ current market value.

The pension gained 4.8 percent for the fiscal year that ended June 30, missing its earnings target amid market volatility that depressed returns.

Pension Consulting Alliance and Meketa Investment Group recommended strategies to produce steadier returns, including making more infrastructure investments, moving toward a more global mix of stocks instead of the current bias toward domestic equities and reducing traditional fixed-income investments.

About 57 percent of the fund’s holdings are in stocks, while they account for 67 percent of the risk, according to a report released Wednesday. It is the first of what is planned as a regular series of updates to board members on Calstrs’s risk exposure.

CalSTRS needs to earn 7.5 percent on average over time to avoid falling further behind in its obligations to 879,000 current and retired teachers and their families. In June 2014, Governor Jerry Brown signed a bill to close a $74 billion funding gap over 32 years by requiring higher payments by teachers, school districts and the state.

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