US - The California State Teachers' Retirement System (CalSTRS) plans to bring more assets in house, scrutinise global equity managers and issue or complete at least seven requests for proposals across its portfolio this year.
New and existing searches are for securities lending providers; real estate managers; private equity, infrastructure and hedge fund consultants; commodities managers and a new risk management system.
Officials at the $155bn pension fund released details of its investment plan for the 2011-2012 fiscal year, which started on 1 July, in an agenda item for its investment committee meeting on 11 July.
In it, officials said they planned to bring more of the global equities portfolio in-house. In June, the board and staff concluded a study of internal versus external asset management that called for over $16bn of the $40bn Russell 3000 passive equity portfolio to be brought in house. Staff already manages 59% of this portfolio internally.
Another task for the global equity team this year will be to evaluate their pool of managers and replace low-conviction managers with high-conviction managers.
"Staff thoroughly evaluates the people, process and philosophy of each investment manager to understand why a manager is able to produce excess returns and why they are sustainable. In addition, during this due diligence, staff discovers how each manager performs in different market regimes (e.g., high growth, slow growth, recession)," the agenda item said.
Meanwhile, CalSTRS has spent the past two years negotiating fees down with their external managers, and has saved 15% over this time. The effort to reduce fees will continue.
Within the fixed income portfolio, staff plans to develop an in-house high-yield portfolio that could reach $1bn in assets, half of the assets allocated to this strategy. Staff will start with an allocation of $250m - $500m and slowly build it up. These assets are currently managed externally.
CalSTRS will also develop the capability to translate non-US dollar contributions and distributions from the private equity, real estate and corporate governance assets internally. This has previously been done by an outside custodian.
CalSTRS also said it plans to search for a new pool of securities lending agents in the coming year. The last restructuring of the pool of sec lending providers was done 10 years ago, and staff wants to refresh its pool.
Also within the fixed income umbrella, CalSTRS is in the process of finalising a bank loan strategy which will "add floating rate protection to the fixed income portfolio. Staff...has also put forward a floating rate taxable securities initiative for the municipal securities market", the agenda says.
CalSTRS is in the process of completing a search for core property managers for its $18.7bn real estate portfolio, and expects that to be completed this summer. They will also issue an RFP to refresh the pool of real estate consultants.
Staff plans to create a master line of credit for use within its property portfolio for use by its joint venture partners, and plans to set up a public securities portfolio.
Separately, CalSTRS private equity staff plans to increase the $22.5bn portfolio's use of co-investment opportunities and implement a policy change to allow for separate accounts, or other structures that could improve governance and lower fees.
The RFP for a new private equity consultant will be completed this year as well. The RFP was issued because incumbent Pension Consulting Alliance's contract expires on 30 June 2012.
The work-plan also calls for a name-change for the absolute return portfolio to the inflation-sensitive asset class to better reflect the assets within it.
The asset class includes a relatively new $150m infrastructure portfolio. Staff plans to invest up to $600m more into infrastructure in the coming year.
CalSTRS will also look to develop a pool of specialist infrastructure consultants.
Finally, CalSTRS will finalise its contract with Lyxor Asset Management, which will serve as a consultant for the new global macro hedge fund portfolio. CalSTRS will open dedicated managed accounts on Lyxor's managed account platform, the would custody assets run by independent hedge fund managers.
Staff has also begun the search for new commodities managers, also a new allocation for the fund.
CalSTRS will also hunt for a new risk management system to replace the BarraOne contract that expires on 30 June 2012.
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