CalSTRS staff prefers not to tie the hands of the fund's emerging markets equity managers by restricting the markets in which they can invest, according to a recommendation to the board. Staff, backed by consultant Pension Consulting Alliance, favors delegating investment decisions to the $126 billion California State Teachers' Retirement System's external managers.
If the board wants to adopt country restrictions, staff and PCA favor dropping countries with market capitalizations less than 0.5% of the Morgan Stanley Capital International Emerging Markets Free ex-Tobacco index. The latter proposal would eliminate Colombia, Egypt, Jordan, Morocco, Pakistan, Sri Lanka, and Venezuela. A third option, based on financial, legal, human rights and social issues, would also drop China and Indonesia, thus eliminating 11% of the index.
The Sacramento-based board has been wrestling with a proposal policy on eligible emerging markets that was proposed by state Treasurer Phil Angelides in 2000 and is backed by unions. However, board members and staff raised concerns about limiting investment opportunities, potentially increasing the board's fiduciary responsibility, and spending too much time on a small portion of the portfolio, according to draft minutes of the board's Dec. 1 meeting.
The policy will be discussed at CalSTRS' Feb. 2 investment committee meeting.