The year that was, a CIO’s perspective

The downgrade of the US took the entire industry by surprise, in a year that confirmed the complexity and unpredictability of markets, CalSTRS chief investment officer, Christopher Ailman, says.

“The entire financial services industry was underweight US Treasuries. We were short duration and underweight sovereign debt. But it turned out it would have been the best decision to be long US debt,” he says.

“It has been a humbling year, we thought we were in a slow recovery, but that completely stalled and for much of the second half of the year we faced the prospect of a double dip.”

Ailman says his team started the year with conviction that inflation would be a key issue for 2011 and had an underweight position in fixed income and a commitment to invest in inflation-sensitive assets.

He says one of the best investment decisions he made this year was to build up the TIPS portfolio, but not because of inflation, because yields were lower.

The decision to be a bit more tactical on asset allocation also paid off for the fund, he says, with a neutral position in global equities from the middle of the year, an example.

Sponsored Content

CalSTRS’ investment team had a creative year working on a number of new initiatives and long-term projects such as the risk overlay, which it will continue to integrate into its investment process next year.

“Diversification is still the centre piece, still our main risk tool, but we need additional tools,” he says.

The fund also created an innovation group and Ailman says the expansion of the investment universe to include opportunities such as micro finance, commodities and global macro hedge funds, has been very interesting.

Ailman says “austerity” will be the key word for 2012, with countries unable to grow their way out of the crisis.

“Austerity is not good for GDP growth, we will have low GDP this year and next,” he says.

With this in mind the fund is debating its equity position, with Ailman’s preference for a neutral position, and will also look at weighting public markets differently.

Ailman says there will be pockets of opportunity in 2012 and that “next year will lend itself more to active management”.

“We have flexibility around our active/passive ranges but will be tilting our portfolio more towards active.”

The best decision for next year will be trying to buy stable cash flows, in whatever form that appears, he says.

 

 

Leave a Comment

Sort content by

The benefits of US regulatory reform

US regulatory reform, such as the SEC’s plan to restore the uptick rule and the Volcker rule to restrict proprietary trading, are a step in the right direction for those advocating transparency. Amanda White explores the story with the chief executive of Principal Global Investors, Jim McCaughan, and head of research, analysis and strategy at

CalPERS considers new asset class classification

CalPERS is considering doing away with traditional asset class classifications in favour of classifying assets according to fundamental characteristics in a bid to provide a better understanding of portfolio risks and performance drivers and so move to a more effective portfolio construction and risk management framework. Amanda White reports. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Risk parity becomes bittersweet flavour of the month (2)

  “Understanding a program’s results involves attributing relative performance to active management, identifying any tactical asset allocation decisions and assessing mechanical factors such as leverage costs. “For most investors implementation of a leveraged strategy would likely require the retention of a beta overlay manager to execute and maintain the desired leveraged systematic exposures or an

Selective opportunities in private markets: Wurts

Private market investors should focus on distressed debt and to a lesser extent secondaries, according to the annual private equity outlook by consultant Wurts Associates, which contrary to other industry observers believes value can be added through top down analysis of the sector. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Strategic implications drive climate change study

The 14 institutional investors participating in the climate change strategic asset allocation study, a collaborative between Mercer, Carbon Trust and the IFC, will all receive individual portfolio scenario analysis of how physical and policy climate change-related events could affect their portfolio at an asset allocation level. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

CalPERS sharpens risk, liability tools

After watching the simultaneous declines of its market value and funded status during the financial crisis, the $204.8 billion CalPERS will conduct a full review of the methodologies underpinning its asset liability management (ALM) process. mrec4inarticleinline Sponsored Content scnative1 scnative2 scnative3

Previous