CalSTRS may adopt the Lehman Brothers U.S. Aggregate Index (ex tobacco) for its $27 billion internally managed fixed-income portfolio, abandoning the Salomon Brothers Large Pension Fund Index it has used for the past 15 years.
Staff at the $100 billion California State Teachers Retirement System, Sacramento, believes the market-weighted Lehman index provides greater diversification than the fixed-weight LPF index.
In the past decade, U.S. Treasuries have dropped to 12% of the U.S. bond market, from 27%, while agencies have soared to 13%, from 6%, and asset-backed securities have shot to 8% from zero.
"As the universe of available securities has expanded, the selection of a fixed-weighting benchmark has become unrepresentative of the opportunity set available to fixed-income investors, a CalSTRS staff memo said.
If approved by the CalSTRS investment committee at its June 5 meeting, the new benchmark would take effect on July 1.