CalSTRS CIO Scott Chan said President Donald Trump’s policies are opening a potential “geopolitical Pandora’s box,” but that the pension fund is in a historically good position to weather the current environment.
“The best analogy I can think of in describing this environment and the policies that have been communicated is opening Pandora's box,” Chan said at the May 7 investment committee meeting for the $349.5 billion California State Teachers’ Retirement System, West Sacramento. “In pursuing a mix of protectionist tariffs, in international disengagement including global security, and a transactional approach to alliances and diplomacy — many times with an adversarial approach — the administration has risked opening a geopolitical Pandora's box.”
“Many risks that we'd never thought were imaginable are seemingly possible, all of which could lead to a series of destabilizing effects that may spiral from fractured alliances to global market shocks,” Chan said. “Like Pandora's box, I would say opening it is unleashing unintended and some unpredictable consequences in the very extreme, undermining some of the pillars of global stability.”
Chan said he believes there is still time to close this box, but whether it remains open or closes, he said the pension fund will weather this environment.
“In the recent past, we've weathered the 2000 tech bubble, the 2008 great financial crisis and the 2020 global pandemic,” Chan said, “and with our plan and with our capabilities to navigate these (crises), combined with our plan for full funding, the teachers’ benefits are secure.”
Chan listed some keys to why he believes CalSTRS is well positioned to handle the risks around what he calls the “upcoming storm.”
“We are the most diversified we've been across our whole evolution of time, and we're diversified across asset classes and geographies and sectors and companies,” Chan said.
As of Dec. 31, CalSTRS’ actual allocation was 40.5% public equities, 15.4% private equity, 13.2% real estate, 12% fixed income, 8% risk-mitigating strategies, 6.6% inflation sensitive, 2.5% cash/liquidity and 1.8% collaborative strategies.
He also said another key is cash and liquidity, specifically.
“When there is a recession or crisis, cash is as good as gold, and we need liquidity to both mitigate risks and rebalance the portfolio. We need liquidity to pursue opportunities and be able to buy assets when they're down 30%, 40% or 50%,” Chan said. “We have been raising cash, and it's on the higher end of what we typically hold, if you were to go back a decade. In addition, we spent time expanding our liquidity tools and formalizing a leverage policy. So again, we're in about as good a position that we've ever been in, historically, that we are in today.”
