Roughly $6 billion could flow into alternative investment strategies as a result of California State Teachers’ Retirement System latest asset liability management study completed last autumn.
Trustees for the $254 billion pension fund are slated to discuss the implementation plan for the new asset mix at the January 30 investment committee meeting in Sacramento.
The target allocation for global equity has been decreased to 42% from 47%, while the targets for real estate increase by 2% and risk mitigating strategies grew by 1%. Another 2% has been set aside for inflation sensitive investments.
The new asset mix is: 42% global equity, 13% private equity, 15% real estate, 6% inflation sensitive, 10% risk mitigating strategies, 12% fixed income, and 2% cash.
Officials told trustees in November that the new asset mix improves diversification, offers better drawdown protection and takes advantage of private asset risk premiums. According to meeting minutes, the committee considered the risk and return trade offs of the alternative portfolio structures and the relative volatility of the recommended asset allocation targets.
As of year end, real estate totaled $34.7 billion and is slated to grow by roughly $3 billion to be in line with the new asset mix. Current managers in the portfolio include: Principal, PCCP, The Blackstone Group, BlackRock, Fairfield, CBRE, GI Partners, LaSalle, Lionstone and DivcoWest.
Risk mitigating strategies total $22.6 billion with a total increase of roughly $2.8 billion to line up with the system’s new target allocation. The asset class includes investments in trend following, global macro and systematic risk premia strategies.
Holdings in the risk mitigating portfolio are: AlphaSimplex, AQR, Brookfield, EMSO, Fort, Goldenbridge, Graham, ISAM, Legion Partners, Lynx, Lyxor Alphadyne, Lyxor Bridgewater, Lyxor MKP, QMS and Trian Partners.
The process of increasing stakes in alternatives is proposed to take place slowly, according to an implementation plan detailed in meeting materials.
CalSTRS CIO Chris Ailman wrote in a memo to trustees that if investment opportunities present themselves then staff will move quicker to implement the new asset mix. Ailman added that this has been demonstrated to work in the past in the funding of the risk mitigating strategies.