REAL ESTATE - The California State Teachers' Retirement System is looking to real estate as it rejigs its investments and tries to plug a $20bn (€15.7bn) funding gap.
The $144bn CalSTRS is upping its target real estate exposure to 11% from the current 6% amid a shift of its allocation targets. It's moving into 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," the Sacramento-based scheme said.
It will now allocate 40% to US equities, from 41% before. Non-US equity remains 20%. Alternatives are boosted to 9% (6%). Fixed income falls to 20% from 26%.
"We conduct these studies every three years but this year the board took a fresh approach to the process," said board chair Carolyn Widener. "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."
"Strategic asset allocation is the single most important factor in determining our rate of return," said chief investment officer Christopher Ailman.
"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."
The fund also approved guiding principles CalSTRS staff will use to draft legislation.
The board's principles include no decrease to member benefits, a mechanism to provide financing for retiree health care and sharing any necessary increases in contributions among the members, school districts and the state. Any increase in contributions would be done incrementally over time and begin no earlier than July 1, 2009.