CalSTRS Board Approves $300 Million Campus Expansion

A second office tower is aimed to attract and accommodate new investment staff, part of a strategy to manage more of the plan’s assets in-house.

The board of the California State Teachers’ Retirement System (CalSTRS) has approved plans to add a second office tower alongside it 17-story headquarters building in West Sacramento, part of a $300 million campus expansion aimed at attracting new investment staff and other workers.

It was only 10 years ago that CalSTRS opened its first office tower along the Sacramento River, consolidating staff at three locations in the process. That tower, however, is now essentially full, even with CalSTRS officials cutting the size of cubicles to accommodate more bodies.

 While the new building would be for all workers at the world’s largest teachers’ pension fund, CalSTRS officials say it would be particularly helpful for attracting new investment staff to manage the system’s portfolio, now valued at $219.3 billion.

The officials told the board two months ago that the new building would have state-of-the-art renewable energy systems, lighting systems which adjust light depending on time of the day, and an overall inspiring environment, which would help attract new investment staffers to the Sacramento area.

“As much as I personally do like Sacramento, that alone would not pull someone from London to come to work here,” CalSTRS CEO Jack Ehnes told the board at a meeting two months ago. “It has to be a work culture and isn’t just about a building, but we have to be able to provide an attraction to that intellectual capital to bring into the organization. I don’t think we spend enough time recognizing how critical is that talent acquisition piece for an organization like us.”

CalSTRS spokesman Michael Sicilia told CIO in an email that the pension system had 159 employees in the investment office and expects to add another 59 over the next four years.

CalSTRS Chief Investment Officer Christopher Ailman had said in the past that he felt it was important to keep investment staff centralized, making the campus expansion the logical path.  At one point, Ailman had thought of opening a San Francisco office to deal with the space shortage and to attract investment talent that wanted to work in a major city.

In a statement after the board approved the expansion on Nov. 10, Ailman said the new building would allow CalSTRS to increase its internal management of investments in a cost-savings move. CalSTRS now runs around 50% of its assets in-house but Ailman’s long-term goal is 60%.

“The more investments we can manage in West Sacramento, the less we have to pay external Wall Street firms,” Ailman said. “In fact, each internal investment manager added saves the fund about $1.2 million in external management fees per year.”

Ailman also mentioned CalSTRS’s collaborative model, a planned investment program in which CalSTRS will collaborate with other institutional investors, with the aim of bypassing or reducing external management.

“A critical component of the new CalSTRS collaborative model is hiring quality staff that can oversee and directly manage investment opportunities,” he said. “And a new, expanded headquarters facility allows us to grow, attract, and retain that talent.”

CalSTRS board member Harry Keiley, chairman of the investment committee, said CalSTRS is limited as a public pension plan in its ability to pay investment staffers, but said the new building could be the perk that attracts talent.

“I think we potentially could have a place that people really want to come work for,” he said. “They’re committed to a mission, committed to public service. Money’s not the only thing that’s motivating them. They want to be in an environment that’s healthy, that’s modern.”

In opting for the new building, the CalSTRS board rejected leasing space or buying an existing building across the river in Sacramento. The new 275,000-square-foot building is scheduled to be completed by 2021. The number of floors in the building has not been disclosed.

Most of CalSTRS staff would move to the new building though some would remain in the existing tower. Some floors of that building would be rented to outside tenants until CalSTRS officials determine the additional office space is needed for its own staff.

CalSTRS has about 1,150 employees, and that number could double when the pension fund reaches its full staffing over the long-term. It is not clear how long it would take to fully occupy both buildings but CalSTRS officials see at least several hundred more employees over the next few years as pension system assets grow.

CalSTRS officials began to consider a second building in 2014. Plan officials reconfigured space in the building after that to accommodate additional staffers. The building was originally designed to house 1,190 persons but cutting workspace allowed that number to increase to 1,352.

Some board members had raised concern about the expenditure for the new building at a September CalSTRS meeting but pitches by CalSTRS officials on how the building plan will help the investment office seemed to seal the deal in November. Board members were also warned they would lose $8 million in design and planning costs for the new building if they did not follow through with the expansion plan.

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