CalSTRS’ Ailman to retire June 30, tells P&I his focus will be climate change, energy transition

Christopher Ailman, chief investment officer of the nation's second-largest public pension fund, is retiring on June 30 with plans to stay on as an adviser through the end of the year to ease the transition after a successor is named, he told Pensions & Investments in an interview.

An industry leader who has long pressed investors to take into account the investment risks of climate change and has defended the importance of defined benefit plans, Ailman has served as CIO of the $304.9 billion California State Teachers' Retirement System, West Sacramento, since 2000. Starting July 1, he will transition to an adviser to the new CIO, who is expected to be in place by then, for the remainder of 2024.

News of his retirement was officially announced Jan. 11 during CalSTRS' investment committee meeting.

CalSTRS' board will form a committee to immediately begin a global search for a new CIO, he said. The board will not be hiring an executive search firm but instead will work with the state human resources department to find his successor.

After a 38-year career working in the public pension fund arena, Ailman, 65, told P&I that he is ready to begin winding down his career. "It's time to slow down. ... I'm starting to empty out my office," he said.

But for Ailman, slowing down is relative. While he won't be in the building after June 30, Ailman said he will be "on call" to "smoothly pass the baton," and in 2025 he'll embark on his encore career with a long list of projects.

The search for a successor means that CalSTRS will be competing for talent with the nation's largest public pension plan, the $470.2 billion California Public Employees' Retirement System, Sacramento, which last year launched its third search for a new chief investment officer in five years. CalPERS CIO Nicole Musicco left in September, returning to Toronto for family reasons only 18 months into her tenure.

Although Ailman made the formal announcement at the Jan 11 investment committee meeting, the board has been participating in a succession planning process that started two years ago around the time former CalSTRS CEO Jack Ehnes was close to retiring, Ailman said.

The search process is open to all qualified executives, internal and external.

"We have strong internal candidates," said Ailman, who heads an investment team of more than 200.

After the transition, Ailman, an avid cyclist and grandfather of two, said he won't entirely stepping away from the industry. In 2025, he said he plans embark on his encore, a part-time career serving on boards and advising money managers and asset owners on the global energy transition and the path to net zero — topics he has been passionate about for years. He also intends to continue working as a university guest lecturer. He has been a guest lecturer for a Harvard Business School course on sustainability and for Boston College's MBA program. And he said he hopes to write more editorials on topics impacting the industry, including the energy transition.

Ailman is one of the longest-tenured CIOs in the world, taking over the post in October 2000 when the fund was valued at $109.6 billion. During his tenure, Ailman guided the pension fund through the internet bubble crisis, 2000-2002; the economic effects of the terrorist attacks on New York's World Trade Center on Sept. 11, 2001; and the global financial crisis in 2008.

CalSTRS posted a 6.3% gain for the fiscal year ended June 30 and 8.7% for the 10 years ended June 30. By comparison, CalPERS, in which Ailman is a beneficiary, earned a total return of 5.8% for the fiscal year and an annualized 7.1% for the 10 years ended June 30.

He also formed an innovation and risk team around 2006 and was instrumental in the board's adoption of two new asset classes: inflation sensitive and risk-mitigating strategies.

"The first big idea out of the innovation team is that Steven developed risk-mitigating strategies," Ailman said, referring to Steven Tong, CalSTRS' director of risk-mitigating strategies who helms the team. "At that point interest rates were diving toward zero. … We needed something that would give diversification when growth failed."

CalSTRS had 8.8% invested in risk-mitigating strategies and 6.1% in its inflation-sensitive portfolio as of June 30, with targets of 10% and 7%, respectively. Risk-mitigating strategies returned -4.19%, underperforming its -1.84% benchmark in the one year and earned 3.51%, identical to its benchmark, for the three years ended June 30.

CalSTRS' investment team developed the inflation-risk portfolio after the 2008 global financial crisis, Ailman said. However, the current allocation to inflation-sensitive strategies isn't enough to provide the pension fund inflation protection, he said.

Pension fund officials will have to devise a way to increase that allocation without cutting into returns, Ailman said.

Ailman also helped the board adopt as well as implement a sustainable investment strategy, which includes the long-term goal of CalSTRS' portfolio achieving net-zero greenhouse gas emissions by 2050 or sooner.

When he's not working on boards such as that of the 300 Club, a group of leading investment professionals, and serving as co-chair of Milken Institute's Global Capital Markets Advisory Council, he plans to focus on climate change and the energy transition, he said.

"Climate change and the energy transition will dominate the landscape for the next 20 years. It has to," Ailman said.

His peers and the money management industry aren't paying enough attention to it, he said.

While some money managers are focused and devoted to the topic, there also is some greenwashing, he said.

"We need better data from companies and better analysis of that data," Ailman said. "It's a key source of alpha and a key source of risk."

Even as Ailman prepares to step down from leading CalSTRS' investment team, the pension fund is evolving.

At the investment committee meeting, members are scheduled to consider for the first time adding 10% leverage to the entire fund on a temporary basis to fulfill cash flow needs in circumstances when it is disadvantageous to sell assets. CalPERS already employs 5% total fund leverage.