US - The US$114bn California State Teachers Retirement System will consider a range of new investment strategies at its December investment committee meeting, including new sub-asset classes in the fixed income portfolio and expanding active and enhanced equity management.
A range of ideas aimed at enhancing investment return will be put to the committee by chief investment officer Christopher Ailman on December 1 following the conclusion of a review carried out by CalSTRS’ investment staff and the fund’s consultant Pension Consulting Alliance Inc.
New approaches to be put forward include conducting a comprehensive review of fixed income, involving consideration of assets outside the current benchmark and the exploration of new sub-asset classes.
In addition, investment staff recommend CalSTRS expand active and enhanced equity management within the US and non-US equity portfolio, pursue niche tactical strategies for real estate and rebalancing strategies (rotational) for external equity.
“If any of these was slam dunk to add return, the investment staff and consultant would have already implemented that concept,” Ailman said in a report to be presented to the committee.
“ As a result, none of these is a lock for added return and many require increasing the risk profile of the portfolio.”
Ailman said the ideas ranged from increasing active management and enhanced indexing to the “more exotic ideas” like market/neutral, micro-cap and futures based collars and butterfly spreads.
The changes proposed for fixed income would see CalSTRS stray from its self-confessed “conservative” portfolio, maintained this way since 1985.
“This has been based upon the view that as our anchor to windward CalSTRS would receive a better risk return trade-off from in the equity and equity like asset classes,” Ailman said.
“While staff still holds that view, the asset class has changed sufficiently to warrant a very comprehensive look at the risk-return potential of a variety of areas.”
New sub-asset class sections within fixed income include bank loans, convertible bonds, structured credit product, non-dollar bonds, emerging market bonds and fixed-income hedge funds.
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