CalSTRS staff wants to expand active management of its U.S. and international equity portfolios, including increased use of enhanced indexing and market-neutral hedge funds. Currently, 75% of the Sacramento-based California State Teachers' Retirement System's $50.5 billion U.S. equity portfolio is managed passively, while nearly $2 billion is managed in enhanced index portfolios. The $118.7 billion pension fund has 56% of its $26.4 billion international stock portfolio managed passively.
The expansion of active management is the top return-enhancing idea recommended by staff and Pension Consulting Alliance from a list developed last summer. Another leading proposal calls for investing the fund's conservatively managed $28.3 billion fixed-income portfolio in new sub-asset classes such as bank loans, convertible bonds, structured credit products, non-dollar bonds, emerging market bonds and fixed-income hedge funds.
For the fund's $5.4 billion real estate portfolio, staff suggested strategic sales, actively managing leverage, pursuing niche strategies in the United States and boosting overseas commitments. For the $5.7 billion private equity portfolio, staff recommended expanding the fund's co-investment program and investments in secondary interests.
The investment options will be discussed at the Dec. 1 investment committee meeting.
Separately, the system committed $400 million to Lone Star V, a $5 billion real estate fund and $100 million to RLJ Urban Lodging, a $200 million specialized real estate fund.