CalSTRS will explore the potential of risk-oriented strategic allocation management and wider asset class ranges, as it sets out its investment business plan for 2010-11, which also includes collaborating with UC Regents and CIC about improvements to Barra One – its risk management system – and potentially further insourcing.
Each fiscal year CalSTRS sets out an investment business plan, with this year’s theme of “continuous improvement” on the back of last year’s “back to basics, alpha, beta, costs”.
“Pension Consulting Alliance will lead us through a discussion of how we might attempt to be more nimble in the financial markets and more actively manage risk at the extreme inflection points in the market,” said a paper to be presented at the meeting states.
The paper also says that later in the financial year, the fund will explore different levels of internal versus external asset management.
Risk measurement and management will also be a key area of continuous improvement, and all the private asset classes will be integrated into Barra One, the fund’s risk measurement system.
It has also said it will work with staff at UC Regents and the China Investment Company to improve the system and enhance reporting.
Climate change and diversity will be a key focus, which includes continuing to expand climate change investment in real estate, private equity and global equity.
The fund endeavours to consider global sustainability issues across its entire portfolio, but this year the innovation and risk unit will also be incorporating environmental factors into a quantitative screen to identify potential new strategies for incubation.
According to the business plan, to be presented at the July 9 investment committee meeting, two core objectives for the investment team this year are adding 60 basis points of value over the policy benchmark, and achieving an absolute return above the actuary assumed rate, which is currently 8 per cent.
In real dollar terms this is $10 billion in profits from the financial markets, and an extra $1 billion of return above the market.
The fund also aims to prudently diversify the portfolio and strive for lower costs.
“The big challenge before us is whether to shift our asset allocation process to make it more nimble to accommodate market dynamics,” the paper said.
In the past, themes for the business plan have included “the year of alph” and “squeezing 8 per cent out of a 5 per cent market”.