CalSTRS Adopts New Asset Allocation Targets

News release

Sacramento, CA – The Teachers’ Retirement Board voted today to make significant changes to the $144 billion portfolio, moving to a higher risk, higher return asset mix. The decision comes at the conclusion of a six-month asset and liability allocation study that weighed both the costs to administer the system and the funded status of the system over a 30-year horizon.

“We conduct these studies every three years but this year the board took a fresh approach to the process,” stated Carolyn Widener, CalSTRS board chair. “It is by far the most in-depth study we have done to date on assets and liabilities. The process was invaluable for helping us to balance our risk tolerance with our main objective, getting consistent, positive long-term investment returns for our members.”

The long-term targets shift 6 percent of the portfolio from Fixed Income and 1 percent each from U.S. Equity and Cash. The Real Estate portfolio will see the largest increase at 5 percentage points; Alternative Investments will receive a 3 percentage point increase. In the current $144 billion portfolio, these shifts would be approximately $11.5 billion.

Asset Class Current Targets New Longterm Targets
U.S. Equity 41% 40%
Non-U.S. Equity 20% 20%
Alternative Investments 6% 9%
Real Estate 6% 11%
Fixed Income 26% 20%
Cash 1% 0%

“Strategic asset allocation is the single most important factor in determining our rate of return.” said Christopher J. Ailman, CalSTRS chief investment officer. “We’ve been moving incrementally toward more active management over the last few years, but the size of the allocation and the new investment philosophy guiding the shift are unprecedented in CalSTRS’ history. Nothing will happen overnight; we will follow our disciplined investment process and adapt to changing market conditions while staying focused on our performance goals and the long-term stability of the system.”

Full plans for implementation asset allocation will be developed later this year and will take up to six years to execute.

With a $144 billion investment portfolio, the California State Teachers’ Retirement System is the second-largest public pension fund in the United States. It provides retirement, disability and survivor benefits to California’s 776,000 public school educators from kindergarten through community college.