CalSTRS approves allocation to flexible investment strategy

California State Teachers’ Retirement System will introduce a new “collaborative strategies portfolio” that will give staff more flexibility to invest in opportunities outside the parameters of a specific asset class.

CalSTRS’ new portfolio reflects a desire among institutional investors to invest opportunistically in investments that fall outside rigid strategy buckets.

CalSTRS’ investment committee approved the new collaborative strategies portfolio at its May 1 meeting, which was viewed by Buyouts.

The portfolio will contain two separate sleeves.

The first sleeve is comprised of two existing strategies managed under what was previously called the “innovation strategies portfolio.” These strategies consist of the SISS Private Portfolio, which focuses on climate-related private assets, along with most of CalSTRS private credit investments.

The second, dubbed the “opportunities sleeve,” would allow for public and private asset class teams to invest in opportunities that “do not fit cleanly” into their respective portfolios, according to board documents.

This could include investments with risk/return expectations that may not be in line with a specific asset class’s benchmark, but still offer attractive returns for the system’s total fund.

The opportunities sleeve would also allow for investments that could exceed an asset class’s allocation or diversification goals, board documents said.

The system began contemplating this approach in 2022.

An example of a possible opportunities sleeve investment was provided at a May 2022 meeting, with deputy chief investment officer Scott Chan citing a hypothetical renewable energy platform too risky for the system’s infrastructure portfolio but with projected returns too low for the private equity asset class.

CalSTRS will invest up to 5 percent of the fund to the new collaborative strategies portfolio.

The system allocated up to 2.5 percent of the investment fund to the previous innovation strategies portfolio, board documents said.

According to board documents, staff can make a single investment up to 1 percent of the value of the total fund in the opportunities sleeve.

CalSTRS investment fund was valued at $336.2 billion at the end of March.