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Legislation

CalSTRS takes a watch position on race, gender equity policy bill for alts managers

Bill is expected to be amended to only apply to portfolio companies of alternatives managers

California State Teachers' Retirement System, West Sacramento, on Thursday voted to take a watch position on a state bill that would currently restrict public pension funds in the state from making new, additional or renewed alternative investments with managers that have not adopted and committed to comply with a race and gender pay equity policy.

Jeremy Blasi, staff attorney for the hospitality workers' union UNITE HERE, which is backing the bill, told the $224.4 billion pension plan board that the bill is expected to be amended before it is heard by committee as early as April 18 that would ask alternative managers to report on race and gender pay policies at portfolio companies in the hospitality sector. According to Mr. Blasi the amended bill would have a three-year duration, making it a pilot program.

CalSTRS' staff was just notified on Tuesday that the bill is in the process of being amended, which could eliminate some of the pension fund's objections to the bill. Joycelyn Martinez-Wade, CalSTRS' director of governmental relations, said that staff had recommended the board oppose the bill as it is currently written unless it is amended because it restricts the board's investment authority.

As a limited partner, CalSTRS has no involvement in general partners' management decisions, Ms. Martinez-Wade explained.

If CalSTRS gets involved in management decisions, it could "pierce the veil," exposing CalSTRS to liability, she said.

Christopher Ailman, CalSTRS' chief investment officer, told the board that every time the pension fund or the Legislature imposes additional requirements impacting alternative investment managers, CalSTRS loses access to two or three more managers "that will not do business with you."

"It's easy to lose access to the asset class," Mr. Ailman said.

Besides, CalSTRS' managers are decreasing their exposure to the hospitality sector in private equity and the pension fund has a low level of exposure to hospitality in its real estate portfolio.

Separately, the CalSTRS board voted to oppose a state bill that would prohibit California public pension funds from providing a cost-of-living adjustment to retirees when a pension fund's unfunded actuarial liability is more than 20%. The board concurred with staff's recommendation to oppose the bill because it deprives plan participants of vested benefits.