CalSTRS CEO Cassandra Lichnock said in a news release that Chan has added “so much value to CalSTRS,” including helping to lead the alignment of its organizational sustainability goals such as sustainable investing and net-zero targets.
Ailman plans to stay on as an adviser to CalSTRS through the end of the year to ease the transition, he told Pensions & Investments in a recent interview.
“Scott has a unique combination of deep institutional investing skills and experience plus a down-to-earth leadership style, and he is committed to upholding the CalSTRS culture," said Harry Keiley, CalSTRS board chairman and chairman of its search committee.
Keiley had reported at the May 2 meeting that the board had selected a new CIO but was waiting for the completion of background checks and acceptance of the offer before making the announcement.
“I am honored to oversee CalSTRS investments and lead our amazing team,” Chan said in the release. “Securing the retirement of our members is extremely meaningful to me personally, as the husband of a California educator, and professionally, as we seek innovative opportunities in ever-changing financial markets.”
CalSTRS board selected Chan following a global search, opting to promote an internal candidate.
By comparison, CalPERS in April chose an external candidate, Stephen Gilmore, the chief investment officer of sovereign wealth fund New Zealand Superannuation Fund, as its new chief investment officer.
In fact, CalPERS has chosen outside candidates for the last three appointments. These appointments include Yu Ben Meng, who rejoined CalPERS as CIO in 2018 from China’s State Administration of Foreign Exchange but had previously been a senior portfolio manager at CalPERS. Meng and his successor, CalPERS former CIO Nicole Musicco, served for about 18 months each in the post.
The importance of teamwork
During his tenure Ailman has often credited his team for the fund's performance. CalSTRS returned an annualized net return of 8.7% for the 10 years and 8% for the 20-year period ended June 30, outpacing its benchmarks in both periods of 8.4% and 7.9%, respectively.
“I know without question that I am leaving you in good hands,” Ailman said In his last CIO report at the May 1 investment committee meeting. “This team is excellent … I am happy to step off the ship.”
Chan has served as deputy CIO since August 2018, overseeing CalSTRS investment division and a team of more than 225 staff investment officials. In that position, he has also been managing eight critical functions, including investment strategy and risk, global equities, fixed income, real estate, private equity, risk mitigating strategies, inflation sensitive, and sustainable investment and stewardship strategies.
Chan was instrumental in creating the vision and direction of CalSTRS' collaborative model, an investment strategy bringing more assets in-house and leveraging outside partnerships to save money, a news release said. The collaborative model has saved CalSTRS more than $1.6 billion since 2017, the release said.
In an interview late last year on the collaborative model, Chan also stressed the importance of his team.
“Over the last several decades CalSTRS has hired staff that has stayed … and we’ve built expertise,” Chan said.
That model requires having the right expertise on staff and the support of the entire organization, he said.
“The board understands we built a staff of experts and delegated authority to us, and Chris (Ailman) and I delegated authority to the team,” he said.
Challenges ahead
Speaking on a May 6 panel at the Milken Conference in Beverly Hills, Calif., Chan said he recognized that there is a rough road ahead in asset management.
“It’s hard to inoculate our portfolio,” Chan said. “What had been tailwinds are now headwinds,” such as inflation.
“We try to create a more flexible adaptable approach,” building out a more diversified portfolio over the last decade that includes investing about 35% of the entire fund in private market assets, Chan said.
One issue ahead is systemic risk, Chan said. “There’s been a paradigm shift in the economy.” In response, CalSTRS has built a unified approach to meet these challenges as a unified organization, he said.
“How do we align the board. How do we align the stakeholders. How do we align our staff,” he said. “We are the investment team but we deal with the whole back office, middle office of the enterprise … The issues we have seen has necessitated the unified approach at CalSTRS.”
The “life blood of an allocator” is to have an unlevered balance sheet to deploy capital during the worst of times, he said. "As long-term investors, we will be able to see those investments through.”
He added that right now CalSTRS is underleveraged. “It’s not time to be greedy,” Chan said.
CalSTRS officials are seeing a subpar level of opportunities, except for on the debt side where there is a lot of investment opportunity, Chan said.
“We are fairly cautious on the equity side,” with private market transactions volumes down 40%-to-50%, he said.
