But CalSTRS officials chose to walk before they can run. Minutes of the Sept. 7 investment committee meeting reveal the staff would like to increase the opportunistic segment to 30% of fixed income in the fiscal year beginning July 1, 2007. That change would add new allocations to emerging market debt and unstated alpha strategies of roughly 2% and 9%, respectively, of total fixed-income assets. To date, however, only the jump to 20% in opportunistic strategies has been approved, though the board may revisit the allocation later, said Brenna Neuharth, a CalSTRS spokeswoman, in an e-mail response.
Other changes also are in the works. A new fixed-income benchmark will wait until the core-plus portfolios are put in place, Ms. Cunningham said.
In addition, CalSTRS is addressing staffing and risk management needs, she said. CalSTRS expects to add two new staffers, one to oversee external bond managers and another to implement a new risk management system that Ms. Cunningham expects to select in about a month.
Meanwhile, CalSTRS' RFP for compiling a list of core-plus managers also would create a new separate pool of high-yield bond managers. The size of the total allocation will not change, she said, remaining between $1.5 billion and $2.5 billion.
Ms. Cunningham said she did not anticipate any change in CalSTRS' current team of external high-yield bond managers, and existing managers won't have to respond to the RFP.
However, she did acknowledge that CalSTRS' existing managers do not invest in lower-quality high-yield debt, which the Ennis Knupp report said created a mismatch with their benchmark. When CalSTRS restructures the total fixed-income portfolio, officials might want to add a manager, either in place of or in addition to existing managers, she said.
CalSTRS has five high-yield bond managers, though the portfolios of two of them have declined drastically.
According to pension fund data, Capital Guardian Trust Co., Los Angeles, ran $393 million in high-yield bonds for CalSTRS as of June 30, but that portfolio had shrunk to $1,264 as of Oct. 31. Similarly, Hartford Investment Management Co.'s $470 million high-yield bond portfolio had declined to $12,031. Typically, such small holdings indicate that a residual portion of a portfolio has not yet been liquidated, but Ms. Neuharth, in her e-mail, said CalSTRS still has contracts with both managers.
Spokesmen for both Capital Guardian and Hartford said the firms don't comment on their relationships with clients.
CalSTRS' other high-yield bond managers are Seix Investment Advisors, $719 million; Post Advisory Group, a unit of Principal Global Investors, which runs $687 million; and Shenkman Capital Management Inc., $489 million.