CalSTRS Investment Officer Josh Diedesch Has a Banner Year
The Davis resident and UC Davis graduate is honored twice

News release Ricardo Duran
Josh Diedesch

WEST SACRAMENTO, Calif. – One thing Josh Diedesch can say about his young career at the California State Teachers’ Retirement System (CalSTRS) – things happened quickly. Whether it’s exposure to a wide variety of investment tasks, getting a front-row seat to the global financial crisis and its aftermath, or getting noticed, he has had little time to react.

In April, Diedesch received two recognitions for his work at CalSTRS from two separate organizations. On April 24, he received the “Rising Star” award from Institutional Investor – a publisher of news and analysis for large asset owners – for his work on the CalSTRS Innovation and Risk team, a small group tasked with researching and experimenting with cutting-edge investment strategies to determine if they would benefit the $183.8 billion portfolio.

On April 18, he was featured in aiCIO magazine’s “40 under 40,” a recognition of excellence among up-and-coming professionals employed by large asset owners. These are pension funds, foundations and endowments whose long-term success depends on astute young minds such as Mr. Diedesch’s.

“Josh gobbled up everything I could hand him: math, mortgages, capital allocation theory,” CalSTRS Chief Investment Officer Christopher J. Ailman told aiCIO, remembering Diedesch as a college intern from UC Davis.

Mr. Diedesch attended UC Davis from 2003 to 2006, spending his last two years as an intern with CalSTRS before receiving a Bachelor of Science degree in managerial economics, with a minor in mathematics. During that time, he also married his college sweetheart and shortly after graduating, became father to a daughter, now 8.

“My first year as an intern, Chris let me shadow him so I got a good deal of exposure to all of the asset classes at CalSTRS,” the 34-year-old Mr. Diedesch said. “It was an unparalleled experience. I also had the opportunity to work on projects in each of the asset classes.”

CalSTRS’ investment portfolio runs the gamut from traditional stocks and bonds, to private equity, real estate, securities and corporate governance. Investments generate about two-thirds of the money needed to provide pensions for 868,000 public school and community college educators in California.

After college, Mr. Diedesch briefly considered other options but decided to pursue employment at CalSTRS.

“I looked at other places and decided the opportunities to do the variety of things I’ve done here was the best option for me,” Mr. Diedesch said.  “I started right on the trade desk in asset-backed securities so I saw the tail-end of the bubble and the downturn first hand.”

From his vantage point, Mr. Diedesch saw the markets move from normal to extremely volatile in a short period of time – a context that required quick action. Little did he know going in that he was witness to the worst financial crisis in U.S. history since the Great Depression. It soon became apparent – this was serious business.

“The situation created a lot of challenges, but also some opportunities,” he said. “Things were changing so rapidly, we had to develop a mindset of acting wisely but quickly.”

Events came at him quickly, ranging from wildly fluctuating markets and harried government regulators, to news of bank failures and wild speculation about what was likely to come next.

“Trying to understand the bigger picture while all these things were rapidly happening was a real challenge,” Mr. Diedesch recalled. “People were scared. Family members kept asking ‘what’s going on?’ and I was trying to understand things myself, let alone explain them.”

Dealing with what became known as the Great Recession opened his eyes to the possibilities that existed in the markets. “Just because something hasn’t happened, doesn’t mean that it can’t happen.”

The CalSTRS investment portfolio took a big hit in the downturn. From its peak in October 2007 of $179.6 billion, CalSTRS saw its assets shrink to $111.6 billion in March 2009. The portfolio has since recovered, but the climb has, like the economy, been uneven.

“Now, people are much more cautious about certain types of investments, and I think rightly so,” Mr. Diedesch said. “Currently, I’m involved in helping CalSTRS find new ways to understand risk through my work on the Innovation and Risk team. We’re a risk management, R&D group and a lab for investments.”

He really appreciates that he was chosen to be part of a small team that works across the total fund to expose the drivers of return – and risk. The Innovation and Risk portfolio was established in 2009 as a reaction to the financial crisis. The team conducts research and analysis on how to best allocate funds going forward.

“His work helps us understand the subtle key components of risk that underlie the portfolio and how we can approach managing them to the best effect,” Mr. Ailman said. “The Innovation and Risk team is definitely the best use for his many talents.”

The California State Teachers’ Retirement System, with a portfolio valued at $183.8 billion as of April 30, 2014, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s 868,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.