CalSTRS aspires to ‘asset manager’ role as it considers GP acquisitons

The pension could one day acquire a fund or specialist manager in the infrastructure, agriculture or timber sectors, although it has no imminent plans to do so.

After years of exploring co-investments and direct investments, the California State Teachers’ Retirement System is urging its staff to “think, plan and operate like an asset manager”, as it considers a future acquisition of a GP in the infrastructure, agriculture or timber sectors, where it has less expertise.

In its investment business plans for the fiscal year 2018-19, CalSTRS’ chief investment officer Christopher Ailman and senior investment staff stated that “the purpose of these plans is to get the investment branch to think, plan and operate like an asset manager rather than a traditional state agency or department”, which they argued was needed in today’s more complex and competitive world. Ailman and his colleagues added “the investment branch is an asset manager trapped inside the body of a governmental structure”.

Asked how CalSTRS, the second-largest US public pension fund and the largest educator-only pension in the world, will achieve this, its director of inflation-sensitive investments, Paul Shantic, told Infrastructure Investor: “It means developing and maintaining long-term relationships, thinking about fees, and being open to investment structures that are more bespoke. It also shows that we keep up with the market’s structural evolution (e.g. funds, separate accounts, direct ownership and co-investments).”

According to the business plans presented and which apply to all asset classes, one of the challenges for CalSTRS’ Inflation Sensitive portfolio, which includes inflation-indexed US government securities, infrastructure, commodities and agriculture and timber, is developing staff capabilities that are needed to manage unlisted assets.

That means CalSTRS might consider acquiring a fund or specialist manager in the infrastructure, agriculture or timber sectors, according to the meeting documents. However, Shantic told us that, “although it exists as a future possibility, especially to gain exposure to new infrastructure assets,” there are no plans to do so for the time being.

‘There’s a reason it’s called the Canadian model’

Asked whether CalSTRS is looking to emulate the Canadian model, Shantic said: “There’s a reason it’s called the Canadian model – it is unique to Canada. We don’t believe the model is replicable in the United States due to historical, political and cultural differences.”

However, there are aspects of that model that can be adopted, such as “the ability to create partnerships in alignment with our beliefs, developing investment structures, rethinking fees and developing a longer-term mindset,” Shantic commented.

CalSTRS launched its infrastructure strategy in 2010, which as at 31 March, was valued at $2.4 billion, representing 59 percent of the $4.1 billion inflation-sensitive portfolio, in which it sits. CalSTRS’ target allocation for infrastructure is 1 percent of its total AUM, which as at 30 June amounted to $223.8 billion.

The pension has been exploring co-investment opportunities at least since September 2014, when Ailman, speaking at the Infrastructure Investment Summit, in Washington DC, said CalSTRS was seeking partners to form a consortium. “We’ll build a large fund ourselves, similar to the IFM model, (and) it will invest in and focus on North America,” he had said at the time.

The following April, CalSTRS partnered with Dutch pension manager APG and investment office Crow Holdings to launch the Argo Infrastructure Partners North American energy infrastructure platform. The three investors committed about $500 million of capital to the deal at the time.