US - CalSTRS is set to review its global equity mandates and will make changes "as necessary" in the wake of losses in excess of 30% last year, the scheme outlined in its 10-year investment plan.
According to the meeting agenda, the fund will maintain relationships with "only the highest conviction active managers that generate high sources of consistent alpha". The plan was approved at an investment committee meeting last week.
To this end, the fund also plans to evaluate a variety of structured products including asset trusts, structured notes, warrants, portable alpha and swaps, which it deems capable of generating "an index return plus a guaranteed amount of alpha above the benchmark".
In addition, CalSTRS will continue to evaluate new mandates for active or passive global equity management.
On the fixed income side, the fund will allocate to higher yielding, non-government securities and floating-rate assets with yields that adjust with changes in interest rates - as it considers these assets to perform better in an environment of moderate inflation and potentially higher interest rates.
The real estate exposure remains particularly challenging for CalSTRS due to current market conditions. Staff plans a number of actions - including actively managing assets to maximize occupancy and revenues from credit tenants and seeking opportunities from distressed sellers - in order to meet its targets.
CalSTRS also outlined its plans to expand its private equity portfolio into emerging markets.
"Emerging markets are projected to have the highest economic growth rates in the world for the foreseeable future as the economies of these countries industrialize and their middle classes expand."
Staff also said that in the short-term, it will look to increase its exposure to the distressed debt market, which currently comprises 11.6% of the $14.4bn private equity portfolio. In the medium to long term, CalSTRS will look at buyouts and equity expansion subsectors.
Separately, staff plans to expand its exposure to activist managers, but said one challenge will be to find appropriate managers, particularly managers with funds in Asia. The scheme current runs a $2.1bn corporate governance portfolio.
CalSTRS will also expand "climate risk management efforts into a sustainability risk management campaign in order to focus on more issues that affect the long-term viability of our investments".
The committee also approved a new asset allocation.
As reported last week, CalSTRS created a new 5% absolute return target and cut global equity to 47% from 60%. (Global Pensions, August 7, 2009)
Other changes included increasing private equity to 12% from 9%; real estate to 15% from 11% and cash from zero to 1%, according to a memo to the board. The target for fixed income will remain unchanged at 20%.
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