By Muskan Arora
The
$337.9bn California State Teachers’ Retirement System introduced a total fund
management division to navigate risks and develop a more resilient portfolio.
In the
recent meeting, the system discussed its fiscal year 2025 business plan where
new CIO Scott Chan said that the division will lead a fresh approach to its asset
allocation process, which is reviewed quarterly.
The newly
implemented asset allocation process is meant to ensure staff collaboration, capture
fast-paced investment opportunities, identify risk-adjusted investments and create a dynamic allocation approach.
Earlier
this month, CalSTRS appointed June Kim, who will be heading the division, as
the senior investment director. Kim reports to Chan.
The new
division will support the CIO in overseeing the liquidity of the total fund and
increase its risk management capabilities.
Chan
anticipates the new division will “take three years to reach full
capabilities, but the team will immediately begin to facilitate and accelerate
these processes.”
“One thing I can guarantee with certainty is that we will
need to adapt to change. Throughout the course of this year, there will be new
risks and we will witness many events we cannot anticipate,” stated Chan, in
the meeting materials.
“Since we need to manage rapidly shifting opportunities and
risks, the Investments Branch is intentionally building a more resilient,
flexible, and dynamic approach to managing our portfolio,” he added.
There have been three dramatic shifts noted in the investing
environment: Tailwinds have become headwinds, the rise of systematic
risks including geopolitical tensions and the rapid pace of change of market
innovation.
Asset class focused initiatives for 2025 plan
For its fixed income sleeve, the system plans to be overweight
to capture attractive yields, as included in the fiscal year 2025 plan. The
fixed income sleeve will continue to build the system’s private credit platform
towards a 2% target allocation. The FI portfolio will build relationships with general
partners that specialize in senior, secured direct lending using a variety of
structures such as funds, BDCs (Business Development Companies), separately
managed accounts and co-investments.
The $135.1bn global equity portfolio plans to expand
its collaborative model including researching quantitative or rules-based
models for internally managed portfolio. The team could also explore internally
managing equity or derivates strategies for other asset classes. The $21.1bn inflation
sensitive portfolio that includes infrastructure, commodities and private
debt among others, will be more selective around managers and co-investment
opportunities.
The $51.7bn private equity portfolio, the staff is “considering
and, in some cases, implementing shorter-term tactical shifts regarding
commitment pacing and portfolio composition.” Within its $47.8bn real estate
portfolio, staff continues to decrease exposure to office space and
increase exposure to data centers, warehouses and retail assets. In particular,
an increased investment in affordable housing is a focus for the RE portfolio.