CalSTRS considers
asset risk factors

The $152.5-billion Californian State Teachers Retirement System (CalSTRS) is undertaking an asset-allocation review that will consider the underlying risk factors of assets for the first time.

Chris Ailman, chief investment officer of CalSTRS, says the fund is in the middle of an asset-allocation study, which would likely take six months, and would take a different tack.

In the past the fund has only considered capital-market mean optimisation in making asset-allocation decisions, but now it will look at allocations according to risk factors as well.

“We will look at the drivers of risk – including inflation, interest rates and GDP – and what the fund is willing to include and exclude. We will optimise our allocations from a capital and risk perspective,” he says.

“If it reaffirms that we’re taking the right level of risk and return, then that is enriching the decision-making,” he says.

 Watching its weight

Sponsored Content

Ailman says the fund is adding points of view to the asset-allocation study and, at a recent board meeting, had an “interesting debate” on whether the goal of the portfolio was to make money or not to lose money.

“Capital-market theory and mean optimisation calculates risk by only one-term standard deviation, but it is much more complex than that. We apply so much math to investments because we want it to be a science, but it’s an art, and requires judgement.”

CalSTRS also makes tactical asset-allocation decisions and this week was due to hold a TAA meeting with one decision on the table: whether to go overweight the US.

At the moment the fund is neutral US, underweight Europe and underweight fixed income.

It has an automatic rebalancing process when allocations exceed the ranges, and Ailman says the question becomes when to rebalance and by how much.

“We are trying to build out an overlay portfolio with focus on left-tail risk,” he says.

Acknowledging inflation as a risk

Ailman’s view is that the biggest bubble in investments is fixed income, and acknowledging inflation as a risk is missing in most portfolios.

CalSTRS will look to expand its inflation-hedging portfolio among a basket of investments, including treasury inflation-protected securities and infrastructure.

The fund currently has a lot of growth assets, with 50.7 per cent in global equities and 14.5 per cent in private equity.

It also allocates 18.4 per cent to fixed income, 14.2 per cent to real estate, 1.6 per cent to cash, 0.2 per cent to inflation and 0.4 per cent to an overlay.


Leave a Comment

Sort content by

Fund managers want to be fiduciaries too

With less institutional flows forecast in the next few years, asset managers will need to implement a convincing “fiduciary overlay” to win business from large investors. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Study accounts for TIPS, alternatives

The effects of adding TIPS and alternatives to the existing asset mix are being explored in an asset liability analysis conducted for the $53 billion Oregon Public Employees Retirement System by Strategic Investment Solutions. A presentation from SIS, which looked at five new asset allocation scenarios adding a 5 per cent alternatives allocation, and between

Time to come clean, says Ambachtsheer

The International Centre for Pension Management’s Keith Ambachtsheer believes if pension fund stakeholders “fessed up” about the real state of their funding situation, the business of pension fund management, and its subsequent investments, will have a brighter future. He spoke to Amanda White. There are not many pension funds around the world that can satisfy

Calls for global governance code go unheard

The global application of a code of best practice for institutional investors, developed by the UK Financial Reporting Council, was debated at the International Corporate Governance Network’s annual conference in Toronto. Amanda White reports. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

How emerging markets benchmarks misread economies

As pension funds around the world shift international equity allocations to emerging markets, they should be increasingly cautious about the benchmarks in use, according to Conrad Saldanha, the New York-based portfolio manager for emerging markets equities at Neuberger Berman. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Global equities lose ground to alternatives

Allocations to alternatives worldwide are expected to increase by more than 5 per cent at the expense of global equities in the next two years, according to Russell Investments 2010 global survey on alternative investing. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous