CalSTRS’ investment committee approved revisions to its risk-mitigating strategies policy, including the expansion of the allocation ranges for each of the portfolio’s underlying strategies.
The investment committee of the $349.7 billion California State Teachers’ Retirement System, West Sacramento, approved the changes at its March 12 meeting, a webcast of the meeting showed.
CalSTRS established the risk-mitigating strategy portfolio in 2016 to reduce the impact of economic downturns by shifting money away from some equity and fixed-income holdings and moving 9% of its overall portfolio into hedge funds, other complex hedge fund-like investments and long-duration U.S. Treasuries.
As of Dec. 31, the pension fund’s actual allocation to risk-mitigating strategies was 8%. The target allocation is now 10%.
Among the changes is the expansion of the allocation ranges of each of the underlying risk-mitigating strategies in the portfolio to 40% from 20% to enhance flexibility. In a presentation included with meeting materials, staff and investment consultant Meketa Investment Group said the current allocation ranges of 20% were thought to be sufficient but have occasionally required more frequent portfolio rebalancing actions to stay within those allowable policy limits.
Within the RMS portfolio, the targets are 45% trend-following (now with an allowable range of 25% to 65%), 35% long duration U.S. Treasuries (15% to 55%), 15% global macro (zero to 35%), 5% systematic risk premiums (zero to 25%) and zero for other strategies (zero to 20%).
The committee also approved adding “defenders” and “diversifiers” as the defined categories of the risk-mitigating strategies portfolio. Treasuries and trend-following fall into the former category, while global macro and systematic risk premiums fall into the latter.
“The defenders are those strategies that are generally the most responsive during a market crisis, and the diversifiers are meant to stabilize the portfolio by providing returns when the defenders might be struggling,” said Jeffrey Jaro, portfolio manager, in the webcast. “We proposed adding these categories into the policy to be very clear about each substrategy’s role in the portfolio.”
