<!-- Swiftype Variables -->

Pension Funds

CalSTRS to explore collaborative investing in alternatives

Christopher Ailman, chief investment officer, CalS
Christopher Ailman, chief investment officer, California State Teachers’ Retirement System

The staff at the California State Teachers' Retirement System, West Sacramento, is expected to propose a project in May for next fiscal year's work plan to fashion a collaborative model for investing in alternative investments, said Christopher Ailman, chief investment officer of the $224.4 billion pension fund.

Institutional investors are expecting lower returns from private equity and so CalSTRS officials want to consider ways of lowering the cost of those investments.

A collaborative model could include everything from direct investing and joint ventures to syndicates of institutional investors joining together on a direct investment.

The project would take two years and would include delving into what a collaborative model would look like and how it could differ for each asset class.

"It will mean different things for each asset class," Mr. Ailman said.

The pension fund had 11.8% invested in real estate, 7.7% in private equity and 1.6% in inflation-sensitive assets, which includes infrastructure, as of Dec. 31.

Separately, Hamilton E. "Tony" James, Blackstone Group executive chairman, on Wednesday told CalSTRS' board at an off-site meeting in Riverside, Calif., that he has discussed a guaranteed retirement account plan with members of Congress on both sides of the aisle and few are against it.

The plan he devised with Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at The New School, would have employers and employees deposit 1.5% of employee pay into government guaranteed accounts that would be pooled and managed by approved asset managers, both private companies and public pension plans such as CalSTRS. The default asset manager option would be a public pension plan, he told the board.

It would be mandatory for workers without retirement plans. People who already have a plan would also be able to participate.

Employees would be able to change the manager of their accounts one time a year on their birthdays. The sum would be paid out as an annuity at retirement as part of the employee's Social Security. Employees would be given up to a $600 tax credit to help defray at least part of their contribution, which would replace the tax benefit provided to defined contribution plans. Employees in the voluntary program would be switched to Medicare when they reach the age of 60, to save employers money on health care.

"I've gotten support by Democrats and Republicans close enough to create a debate," Mr. James said.

He said he also plans to speak to the President Donald Trump and some of his Cabinet members, including Treasury Secretary Steven Mnuchin.

California Controller Betty T. Yee, a CalSTRS board member, noted that more than a dozen states, including California, are working on defined contribution plans for workers at private companies that do not have a defined contribution or defined benefit plan.

Mr. James said the problem with those plans is that people and companies move around and that most of the state plans do not have a lifetime income component. However, workers in the gig economy who do not have an employer would have to contribute the entire 3% if they want to participate in the program.