CalSTRS Boosts Private Equity Target By $1.7 Bln

Pension: California State Teachers’ Retirement System

Assets Managed: $170 billion (July 31, 2013)

PE Assets Managed: $21.8 billion

PE Allocation / Target: 12.8% / 13%

Chief Investment Officer: Chris Ailman

The $170 billion California State Teachers’ Retirement System, as part of a “subtle” shift to its long-term allocation targets, boosted the amount of money it plans to invest in private equity by 1 percentage point, to 13 percent of its overall portfolio, according to a news release. The increase translates to $1.7 billion.

Private equity represents 12.8 percent of the nation’s second largest pension fund’s overall portfolio, or $21.8 billion. So the new allocation target largely recognizes the program’s current size. Nevertheless, the addition of $1.7 billion to the target allocation represents an increase of 8 percent over the pension’s current target. Calls to CalSTRS were not returned by press time.

“Strategic asset allocation is the single most important factor in determining the overall rate of return for investments over the long term,” said Chris Ailman, CalSTRS’s chief investment officer, in the release.

Among other changes, CalSTRS is boosting its allocation target to inflation-sensitive investments to 6 percent of the overall portfolio, triple the 2 percent prior target. The investment committee instructed the staff to reach the higher allocation “opportunistically,” according to the release. Inflation-sensitive investments include such areas as commodities and infrastructure investments.

Meanwhile, as with private equity, the pension raised its real estate allocation target by 1 percentage point, to 13 percent.

Tellingly given today’s low-interest-rate environment, most of the asset reallocation came out of CalSTRS’s fixed income portfolio, whose target was reduced from 20 percent to 16 percent. Additionally, global equity was reduced by 2 percentage points to 51 percent of the overall portfolio.

These adjustments come at the end of an allocation review process that takes place once every three years, according to the release. CalSTRS’s annual return target is 7.5 percent.