CalSTRS approved issuing RFPs by the end of June for at least one domestic equity manager for its new developing manager program, as well as one or more corporate governance/relational managers. The sizes of the allocations have not been determined. Funding will come from a $3.5 billion shift to active from passive U.S. equities, previously approved by the investment committee of the $90 billion California State Teachers Retirement System, Sacramento.
A review of 15 developing manager programs by consultant Pension Consulting Alliance found no overall difference in performance between developing managers those with less than $2 billion in assets under management and their more established counterparts. For large-cap core and large-cap growth strategies, small firms offered slightly higher returns with modestly lower risk and less chance of surprising results, PCA noted. The study was subject to survivor bias: Smaller firms were roughly twice as likely as larger firms to go out of business over the five years ended Dec. 31.
For the new corporate governance program, CalSTRS will seek managers that will intervene in a portfolio companys long-term strategy, capital structure and capital allocation plan, as well as its corporate governance, including its board structure and board composition.