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Pension Funds

CalSTRS scouting for specialized consultant for collaborative investment model

CalSTRS officials expect to hire a specialized consultant from its investment consultant pool to assist with its implementation and expansion of its collaborative investment model, a report to the investment committee for the $227.8 billion pension plan said.

California State Teachers' Retirement System, West Sacramento, is in the midst of implementing its collaborative model in each of its asset classes sequentially from external management to internal management. The spectrum includes partnering with peers, forming joint ventures, co-investing, purchasing passive and controlling stakes in investment companies and building internal investing capabilities, the report said.

CalSTRS is already executing some collaborative investing strategies. For example, officials are working to bring more global equities and fixed-income assets in-house. CalSTRS is also bringing in-house consulting for its risk mitigating strategies as well as some investment management. Officials are reducing active management of its sustainable investment and stewardship strategies and identifying more co-investment opportunities in the portfolio. In real estate, CalSTRS' team is buying real estate operating companies and forming joint ventures with regional and national experts in property types. In its inflation sensitive portfolio, CalSTRS officials are collaborating closely with global asset owners across multiple investments and investment vehicles, the report noted.

To implement its collaborative model, staff has identified what it calls its four critical resource pillars: human resources, including hiring more legal and human resources executives; a streamlined procurement process; increased travel; and an "other" resource pillar. So, at its Wednesday meeting, the board will be asked to add 15 investment staffers and $4 million of previously approved five-year budget authority for fiscal year 2020, according to a report to the board. The board's fiscal year 2019 operating budget included $14.5 million and 55 positions for the investments branch to be deployed over five years, based on a resource forecast for fiscal years 2019 through fiscal year 2023. The collaborative investment model requires more resources.

CalSTRS compensation committee is also scheduled to consider at its May 9 meeting whether to increase the base salaries of certain investment and executive positions and to change its incentive plan components to bring CalSTRS' total cash compensation in line with the marketplace.