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CalSTRS lowers bonds in new asset allocation

Christopher Ailman

Updated with correction

CalSTRS' investment committee on Tuesday approved a new asset allocation for the $170 billion pension fund. The key changes include a reduction of the fixed-income portfolio to 16% from 20%, and an increase in the inflation-sensitive asset class to 6% from 2%.

The inflation-sensitive asset class consists of some fixed-income instruments, including Treasuries and TIPS, as well infrastructure investments.

Other changes are a reduction to the global equity asset class to 51% from 53% and upticks in the private equity and real estate classes to 13% from 12%. Cash would stay the same at 1%, as would the absolute-return asset category at zero.

Chief Investment Officer Christopher Ailman said zero for absolute return does not prevent the California State Teachers' Retirement System from investing in absolute-return strategies as part of its innovation asset class. Currently, half a percent of the West Sacramento-based pension fund's total portfolio is invested in absolute-return strategies through the innovation asset class.

Mr. Ailman said CalSTRS' investment staff agreed with the recommendations of investment consultant Pension Consulting Alliance that the pension fund would have to make a 5% commitment to absolute-return strategies to have a positive effect on the portfolio.

The new asset allocation will be implemented gradually over the next 2 years as investment opportunities and market conditions dictate, Mr. Ailman said.