CalSTRS' investment committee revised its policy to add alternative investments to its sustainable investment and stewardship strategies portfolio and set a 5% combined maximum for its public and private sustainable portfolio.
The $282.5 billion California State Teachers' Retirement System, West Sacramento, plans to commit $1 billion to $2 billion to the private sustainable portfolio over the next couple of years, according to agenda materials from Thursday's investment committee meeting. The capital will be committed across its private equity, real estate, infrastructure and innovative strategies asset classes. CalSTRS will leverage existing managers as well as develop new investment partnership.
CalSTRS officials plan to commit $200 million to $500 million each year to affordable housing with its real estate team, $150 million annually to low-carbon solutions with its private equity team and $250 million to $500 million each year to low carbon solutions with its innovative strategies team. Low carbon solutions are investment solutions that enable high carbon sectors to shift to a low-carbon economy, with investments such as renewables and storage, water-efficiency management, alternative proteins and vertical farming.
The pension plan had $7.5 billion in its public markets sustainable investment and stewardship strategies portfolio as of June 30.
The establishment of the private market sustainable investment and stewardship strategies does not create a new asset class. The aim of the portfolio is to co-invest alongside managers to make investments that "demonstrate positive contributions to a more sustainable global economy."
Separately, CalSTRS earned a net return of 13% for the one year, 10.3% for the five years and 9.4% for the 10 years ended Dec. 31, it reported. The portfolio beat its benchmark in all periods except for the 10 years. The benchmark performance was 12.4% for the one year, 8.4% for the three years, 9.8% for the five years and 9.5% for the 10 years ended Dec. 31.
Global equities was the top performing asset class in the one year ended Dec. 31 with 16.4% but below its 16.7% benchmark; private equity earned 16%, surpassing its 11.5% benchmark; fixed income returned 8.4%, above its 7.5% benchmark; and real estate earned 4.1% vs. its 0.5% benchmark.
CalSTRS' goal is to produce an average of 7% each year over the next 30 years.
"This is a fantastic report but what really matters is the future," said Stephen P. McCourt, managing principal and co-CEO of Meketa Investment Group, CalSTRS' general investment consultant at Thursday's meeting.
He added that investing could be tougher now, especially with the challenges of a low interest rate and the challenges of remote working.