NEWS

CalSTRS introduces a new division, draws fiscal year 2025 plan

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.