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Sacramento, CA - The California State Teachers' Retirement System today
adopted the Lehman Brothers U.S. Aggregate Index (excluding tobacco) as
its benchmark to track the performance of its internally managed long-term
fixed income portfolio. The nation's third largest pension fund, at $100
billion, examined various customized and broad market-weighted indices
before selecting the Lehman Brothers index.
"After a lengthy review, we feel the Lehman Aggregate best represents
our investment opportunity set and is the best benchmark for our fixed
income portfolio," said Christopher J. Ailman, CalSTRS chief investment
officer. "We are very pleased to work with Lehman Brothers in the
evolving fixed income marketplace."
CalSTRS uses a benchmark to measure the performance of its $27.9 billion
domestic fixed income portfolio. The portfolio is managed by CalSTRS staff
except for high yield bonds, which are targeted at 5 percent of the fixed
income portfolio. CalSTRS does not currently have an allocation to non-dollar
fixed income securities. Structural changes to the fixed income portfolio
as a result of the new benchmark will be done gradually over an extended
period.
The previous benchmark, the Large Pension Fund Index, had been customized
for CalSTRS in 1987 by Salomon Brothers. It is a fixed-weight index heavily
weighted toward U.S. Treasury debt. The change to Lehman Brothers Aggregate
Index followed study by CalSTRS staff and its consultant, Pension Consulting
Alliance, of it, the Salomon Brothers Broad Investment Grade Index and
the Merrill Lynch U.S. Broad Index.
The switch was recommended because the CalSTRS staff and PCA concluded
a market-weighted index would provide better diversification to the portfolio.
While all three indices considered could provide broad market coverage,
Lehman Brothers contains the largest number of issues, at more than 6,700
issues, and is the only one that includes the Commercial Mortgage-Backed
Securities market.
CalSTRS typically reviews the suitability of its performance benchmarks
about every three to four years. The last such review for the fixed income
portfolio was in March 1999. CalSTRS finished such a process in May for
its domestic equity portfolio and changed to the Russell 3000 (excluding
tobacco).
CalSTRS serves approximately 687,000 members and benefit recipients by
providing retirement, disability and survivor benefits to California's
public school educators in grades kindergarten through community college.
Those benefits are guaranteed by law and are not affected by changes in
the investment portfolio.
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