California State Teachers' Retirement System, West Sacramento, on Wednesday moved its asset allocation closer to the long-term targets adopted in January, increasing its private equity and real estate allocations, which due to the coronavirus pandemic are a larger percentage of its asset mix because of equity market volatility.
When the investment committee of the $242.8 billion pension fund adopted the new long-term asset allocation in January, it also approved a plan to implement the asset allocation in a series of steps. The new interim asset allocation targets were effective as of July 1.
Private equity and real estate rose 1 percentage point each to 10% and 14%, respectively, while public equities fell 2 percentage points to 49%. Inflation-sensitive assets remains at 3% rather than increase to 4% under the original plan. CalSTRS is also maintaining its 13% fixed income and 9% risk-mitigation strategies allocations, rather than shift 1 percentage point to risk-mitigation strategies from fixed income indicated under the original plan.
"In an ideal world, staff would prefer to make that shift, but RMS (risk-mitigation strategies) has seen its manager roster shrink during this period and with the shelter-in-place and (staff) has been unable to select more firms," said a memo to the investment committee. "Rather than concentrate even more assets in fewer managers, staff feels it is prudent to put that one percent shift."
Rounding out the asset classes, the cash/liquidity allocation remains at 2% and innovative strategies remains at zero.
In response to questions about making the asset allocation retroactive, CIO Christopher J. Ailman told the investment committee that the staff does not know where the June 30 alternative investment valuations will end up. Also, it is "much cleaner" to start a new asset allocation at the beginning of a quarter for performance reporting, external reports and staff compensation, Mr. Ailman said.
Separately, Mr. Ailman said CalSTRS returned 3.9% for the fiscal year and 6.5% for the three years ended June 30. CalSTRS will release the full returns by next week, he said.
