CalSTRS is seeking to boost its allocation to U.S. enhanced index equity managers by $2.3 billion and plans to issue an RFP for additional managers, according to a staff memo to the board.
The $123.5 billion California State Teachers' Retirement System, Sacramento, is working to meet a previously approved plan to boost passively managed assets to 30% of U.S. equities, from 20%. The proposed policy mix would actually allocate 15% of U.S. equities each to enhanced and active U.S. stock managers, which would require shifting another $2 billion from active to enhanced managers. But those targets are "theoretical," said Sherry Reser, CalSTRS spokeswoman.
CalSTRS staff plans to review the fund's four external enhanced domestic equity managers - Barclays Global Investors, State Street Global Advisors, Mellon Capital and DSI International - which run a combined $3.6 billion. The staff memo notes that existing managers might be replaced or have their allocations increased. Current CalSTRS enhanced managers use fundamental stock-based approaches, and staff expects to consider other enhanced styles, such as futures-based and options-based strategies, the memo said.
Pension Consulting Alliance is the consultant. The CalSTRS board will review the proposal on June 1.
Separately, CalSTRS and consultant McKinsey & Co. recommended the fund boost its buyout allocation to 70% from 60% of the fund's $6.4 billion private equity portfolio, while trimming the fund's venture capital allocation to 15% from 25%. The shift is recommended because the buyout sector is growing faster than the venture capital sector, a staff memo explained.
In addition, staff recommended the fund's alternatives benchmark be lowered to the Russell 3000 index plus 300 basis points, cutting the target return by 200 basis points. Staff said the change is consistent with assumptions made by other pension funds.
Staff also recommended increasing the amounts that they can commit to private equity funds without getting board approval. For new manager funds, staff would be able to commit the lesser of $250 million or 15% of the total fund size, up from $100 million or 20% of fund size. For follow-on funds, staff could commit the lesser of $500 million or 15% of fund size, up from $500 million or 20% of fund size.