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CalSTRS finalises investment beliefs

The pension system adopted the last of its eight-point framework for investment policies across asset classes, using similar language to the California Public Employees’ Retirement System.

The California State Teachers’ Retirement System has completed its first set of investment beliefs, approving an eighth addition last week.

Last week, CalSTRS accepted the final investment principle in the framework, “Alignment of financial interests between CalSTRS and its advisors is critical.” In a document outlining the investment beliefs, the pension system explained the significance of the eighth tenet: “CalSTRS is best served when there is contractual alignment of financial interests with its external investment advisors and managers, and transparency about those interests.”

The other seven investment beliefs touch on topics ranging from the benefits of a diversified investment portfolio to the importance of managing investment costs.

In October 2015, CalSTRS identified the need for an investment framework, citing in a board document that other institutional investors started developing similar statements in 2010 to internally and externally communicate their investment policies. Between 2015 and 2017, the pension system worked with its various consultants and stakeholders, such as the California Teachers Association, to solicit input and recommendations on the beliefs. In November 2016, the board approved the first five beliefs, with the next two approved in April 2017.

A spokeswoman for CalSTRS, which manages $225 billion overall, said the investment beliefs would not affect how it approaches its $26.6 billion real estate portfolio or any other asset class.

“While these beliefs will not change the manner in which the portfolio is invested, they provide transparency into how CalSTRS invests its assets,” chief investment officer Chris Ailman said in last week’s statement.

The pension system recently swapped its external real estate advisor, PERE previously reported. In November, CalSTRS said it dropped the Townsend Group after nine years, replacing the Cleveland, Ohio-based consultancy with Washington, DC-based RCLCO. Townsend’s contract expires this month, and RCLCO starts next month with a three-year real estate consulting contract.

CalSTRS’ peer, the California Public Employees’ Retirement Association, adopted its own set of 10 investment beliefs in 2013. While CalPERS’ framework did not explicitly address alignment of interests as a standalone belief, some of the sub-sections included the issue.

One point said that “CalPERS may engage investee companies and external managers on their governance and sustainability issues, including: governance practices, including but not limited to alignment of interests.” Another said: “Each asset class should have explicit alignment of interest principles for its external managers.”

Overall, CalPERS managed $351 billion, including $30.5 billion in real estate, as of October 31, according to its website.