CalSTRS CIO Christopher J. Ailman is recommending the $140 billion pension fund lower its expected rates of return for certain asset classes. He recommends the fund drop its annual return assumptions by one percentage point for fixed income and cash to 4.75% and 3.5%, respectively, and reduce the expected return for TIPS to 4.5% from 5.25%, according to a memo to the board of the California State Teachers' Retirement System, Sacramento. Despite noting that the debate on whether the equity risk premium has shrunk substantially, Mr. Ailman would ease the return for both U.S. and international equities to 9% from 9.25%.
Private equity and real estate would remain steady at 12.5% and 7.5%, respectively.
The changes would be part of the fund's ongoing triennial asset-liability study and are in line with assumptions used by four outside consultants. CalSTRS' investment committee will discuss the asset-liability study at its Feb. 2 meeting.