Staff presented the investment committee of the California State Teachers' Retirement System, West Sacramento, a bar chart representing portfolio allocations across different return levels, with the portfolio return and risk increasing with the allocation to growth assets — public and private equity. Growth assets are expected to be the primary engine of long-term returns in the portfolio, Mr. Diedesch said
Based on these capital market assumptions, CalSTRS' current long-term asset allocation has an expected return of about 7.4%.
Too little risk reduces returns, but higher returns would require the portfolio to take on more risk, Mr. Diedesch said.
"A lot has changed in the last year, year and a half," Stephen McCourt, managing principal and co-CEO of the CalSTRS general investment consultant Meketa Investment Group, told the committee. He noted rising interest rates and valuation changes in the global equity markets as some of the factors that have been impacting markets.
The result is higher expected returns for investors, which was reflected in the capital market assumptions that were adopted as part of CalSTRS' asset liability process. That also means investors can get a "somewhat higher return" for a portfolio with the same level risk, Mr. McCourt said.
Board Chairman Harry M. Keiley said that he wouldn't be comfortable with a portfolio that would return at the low end of 6% or 6.5% nor at the high end, noting 7.8% would be a little aggressive and place "a pretty big bet on growth."
"I love the 7.4% range," he said.
Other board members, including investment committee Chairman William Prezant, indicated that they would not be comfortable with taking more risk than portfolios in the 7.2% to 7.45 range.
"Why take more risk at this point of time," Mr. Prezant said.
Separately, during public comment, Alyssa Giachino, campaign and research director of non-profit advocacy group Private Equity Stakeholder Project, told the committee that Packers Sanitation Services, a portfolio company of Blackstone Core Equity Partners, a fund in which CalSTRS is an investor, paid $1.5 million in civil money penalties on Feb. 16 after the U.S. Department of Labor found the company employed at least 102 children — 13 to 17 years old — to work overnight shifts at 13 meat processing plants in eight states. Blackstone has owned Packers Sanitation since 2018, Ms. Giachino said. This highlights the human capital risks CalSTRS is taking across its portfolio, she said. The Private Equity Stakeholder Project receives funding from unions and other non-profits.
In response, Mr. Prezant thanked Ms. Giachino for bringing the issue to CalSTRS' attention and said that staff is pursuing the matter "vigorously."
"It is part of our ESG responsibility, and we take that responsibility seriously," Mr. Prezant said.
"PSSI (Packers Sanitation) has an absolute zero-tolerance policy against employing anyone under the age of 18 and is fully committed to ensuring it is enforced (at) all local plants," Blackstone said in a statement.
In other actions, the CalSTRS board on Wednesday voted to oppose a California bill that would prevent it as well as the $457.4 billion California Public Employees' Retirement System, Sacramento, from making additional or new investments or renewing existing investments in a fossil fuel company. The board opposed the bill because it would infringe on the board's investment authority and its authority to administer the retirement plans.
