US - The US$ 137bn California State Teachers' Retirement System (CalSTRS) is planning to increase the level of active risk within its $31bn fixed income portfolio.
The news comes as the fund issued a request for proposal to establish a pool of managers for both high yield bond and core plus mandates.
The request introduces a new mandate for core plus managers to actively manage up to $6bn. The high yield bond manager allocation will remain at its current level of between $1.5 and $2.5bn.
According to CalSTRS, who are recently reported to be underfunded by $24.2bn, the request for proposal is the culmination of a series of presentations that led to the decision to expand the fixed income portfolio’s investable universe from the Lehman Aggregate and High Yield universe.
The multi-phased restructuring process will move from the current 95% core 5% opportunistic structure to an 80% core 20% opportunistic structure. Within the opportunistic strategies portion of the portfolio, a core plus allocation was added to the current high yield allocation.
“CalSTRS has historically approached its fixed income asset management fairly conservatively. We believe that a modest increase in the level of active risk within the fixed income portfolio will also provide potential for greater returns above the benchmark,” said Michelle Cunningham, director of fixed income.
At $31bn, the fixed income asset class represents the second largest asset class in CalSTRS portfolio. Currently all of the investment grade assets are managed in-house barring high yield assets.
By Daniel Flatt
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