Investment Committee of CalSTRS Examines Four Factors



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.

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