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Collaborative Model savings surpass $1.6 billion

The Collaborative Model investment strategy has saved CalSTRS more than $1.6 billion since 2017 on behalf of its members: California’s public educators.

As part of the Collaborative Model Savings Report to the Teachers’ Retirement Board’s Investment Committee, staff outlined how the Collaborative Model saved CalSTRS $428 million in 2022 and on average $274 million annually in the past six years.

The Collaborative Model focuses on reducing costs, controlling risks and increasing expected returns by managing more assets internally and leveraging external partnerships to achieve similar benefits.

These savings are generated by reducing management fees and carried interest paid by the total fund. Carried interest is profit-sharing that investors pay in some private asset partnerships after an investment has made a profit.

CalSTRS tracks more than 300 components within the Collaborative Model: in private investments, where CalSTRS collaborates with external industry partners; in internal management, where CalSTRS brings specific strategies in-house; and in relationship rebate agreements.

Co-investments have produced the greatest amount of savings from the Collaborative Model. In 2022, co-investments (opportunities that require little to no management fees or carried interest) across the private asset classes saved more than $245 million.

While investment costs can fluctuate significantly each year, CalSTRS is a long-term investor and looks at the long-term trends, not annual volatility. The $1.6 billion in cost savings will compound over time and help the fund grow.