As the CIO of the second-largest US pension fund, Christopher J. Ailman is a champion of innovation.

It’s all a matter of guiding his 117-member staff to adapt to a complicated global investment environment. Upon being named No. 1 among CIO’s Power 100 for 2018, for the second year in a row, he said that “our investment staff must innovate, evaluate, and manage a vast and complex portfolio in the face of a wall of global risk.”

The world’s largest educator-only pension fund, the California State Teachers’ Retirement System (CalSTRS) serves its 933,000 members well, posting a 9% annual return (net of fees) for the 2017-18 fiscal year, ending June 30—which exceeded its investment assumption of 7% for the second consecutive year. Over a five-year period, it averaged 9.2%.

CalSTRS runs a diversified portfolio to provide risk protection via its risk-mitigating strategies asset class, which the system fully implemented starting in 2017. This approach involves investments in long-duration Treasury bonds, trend following, global macro, and systemic risk premia. Those strategies, the pension managers believe, are vital to prevent the losses seen during market downturns such as the 2008-09 global financial crisis.

As of mid-year 2018, the CalSTRS portfolio held 53.7% in US and non-US stocks, or global equity; 12.8% in real estate; 12.3% in fixed income; 8.9% in risk-mitigating strategies; 8.2% in private equity; 1.9% in inflation sensitive assets; 0.8% in innovative strategies and strategic overlay; and 1.4% in cash. 

“We need to repeat that performance year in and year out, on average, over the next 30 years,” Ailman said in a statement accompanying the financial returns announcement. He noted that this puts CalSTRS in the top quartile of public funds over $10 billion in State Street’s universe for the three- and five-year spans ending June 30.

As such, CalSTRS’s strategy is the epitome of investing for the long haul. “This is a marathon, not a sprint to the finish line,” he added.

Ailman is a stalwart proponent of environmental, social, and governance (ESG) investing. With a portfolio valued at $219.2 billion as of Oct. 31, CalSTRS has become a major voice in the push for ESG.

“I firmly believe it adds to the bottom line,” he said of ESG investing, in remarks to a CFA Institute gathering in Chicago last year. To Ailman, this is a way of mitigating long-term operational business risk. He cited the Enron scandal and the BP Deepwater Horizon disaster as problems that proper ESG screening could have foreseen, and led investors to avoid these stocks.

“ESG is a core risk management tool,” he said in a tweet last year.

Arriving at CalSTRS in 2000 after a stint as CIO of the Sacramento Employees Retirement System and the County of Sacramento, Ailman has long been an advocate of ESG ideals, including diversity. In 2006, for instance, the New America Alliance honored him with its Distinguished Service Award for the Advancement of Latinos in Business. 

The system enhanced its ESG effort in February by enlisting eight equity asset managers that focus on this type of investing, which involves managing a piece of up to $1 billion in commitments.

Tirelessly, Ailman has spoken on the topic to numerous investment conclaves, such as the CFA Conference and Bloomberg New Energy Finance Summit.  He taught a mandatory ESG integration course to CalSTRS investment officers.

And he is not shy about taking on controversial subjects. In the spring, CalSTRS launched an assessment of its share holdings in Facebook, which has been mired in various controversies, including misuse of users’ data. The pension plan has held stock in the social network since its 2012 public offering, valued at mid-year 2018 at just over $1 billion. Ailman in April deactivated his personal Facebook account, tweeting that the company’s “lack of oversight and poor management is offensive.”

What’s more, CalSTRS in November announced that it was divesting its stake in two private prison companies, after the Trump Administration moved to separate the children of immigrants who had crossed the border. The prisons have been detaining undocumented immigrants.

Meanwhile, Ailman is irked by some of the loose language associated with ESG, some of it polarizing. An article he co-wrote with Mark Walker, CIO of Britain’s Coal Pension Trustees, pointed out that some investment officers’ titles include the phrase “responsible investment.” They went on the ask “what does that imply about the rest of the staff? That they are irresponsible investors?”

Aside from his public speaking, Ailman’s reach extends far beyond CalSTRS. He chairs the Sustainability Accounting Standard Board Advisory Group. He is a member of the International Corporate Governance Network, a British not-for-profit organization raising the standards of corporate governance worldwide. He is the past chairman and currently is on the board for the Pacific Pension Institute, an educational resource to institutional investors engaged in long-term investment in the Asia-Pacific region. Ailman also is the co-chair of the Milken Global Capital Markets Committee from the Milken Institute.

He serves on the board of the Emory Center for Alternative Investments at Emory University’s Goizueta Business School. He also represents institutional investors on the MSCI Barra Index Editorial Advisory Board and the EDHEC-Risk Institute.

In 2011, he received both CIO’s Innovation Award and Institutional Investor’s Large Public Fund Manager of the Year Award. In 2003, his CIO peers in the United States awarded him the Richard Stoddard Award for service in the investment of public pensions. Ailman received the CIO of the Year Institute of Fiduciary Education Leadership Award in 2000. He also is a member of the 300 Club, an independent group made up of leading investment professionals from around the globe.

At CalSTRS, Ailman knows that implementing ESG principles is daunting. Increasing diversity in the ranks of investment managers, which are largely male, is a challenge, he says, but one worth taking on.

In an interview with Barron’s, he gave the analogy of a man who throws starfish back into the ocean: “There are millions of them and you can’t possibly save them all, and he says, ‘I’m making a difference to that one.’ If we can get one or two women ahead in investment management, at least we have made a difference for them.”

By Larry Light