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Investment Committee of CalSTRS Examines Four Factors

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CalSTRS HQ

CalSTRS HQ

What finance majors learn in university is being challenged in pension and sovereign wealth fund board rooms. Risk factor asset allocation is a new trend gaining popularity with chief investment officers and board members. Norges Bank Investment Management has performed research in the area and sovereign funds like the Alaska Permanent Fund Corporation have adopted it. In recent months, the California Public Employees’ Retirement System (CalPERS) went under an investment belief exercise.

Investment committee members of the $164 billion California State Teachers’ Retirement System (CalSTRS) may vote this Summer on factors during a planned session dubbed the CalSTRS Interactive Risk Tolerance Voting Session. Through previous committee meetings at CalSTRS, board members agree that a risk class allocation framework may be a better solution than the traditional asset class framework.

CalSTRS – Four Key Decision Factors

  • Return-Oriented – Seek to improve the relative funded status over the next 30 years. – Horizon: 3-30 Years
  • Return-Oriented – Seek to maximize the 20 year geometric real return. – Horizon: 0-10 Years
  • Risk-Oriented – Avoid significant asset drawdown within the next 10 years. – Horizon: 0-10 Years
  • Risk-Oriented – Minimize the likelihood of Pay-As-You-Go (Paygo) status beyond 10 years. – Horizon: Years 5-33

Once the factor weights are selected, there will be a process to amend the investment policy of CalSTRS.

China’s Central Bank Creates Macro-Prudential Management Bureau

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The People’s Bank of China (PBOC) created a new department to oversee and attempt to eliminate financial risks to the system. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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