CalSTRS Boosts Inflation-Linked Allocation

(September 11, 2013) — The second largest US public pension is to shave its allocations to equities and fixed income in order to boost the inflation-linked part of its portfolio.

The investment committee of the California State Teachers Retirement System (CalSTRS) agreed yesterday to boost the current 2% allocation to inflation sensitive assets to 6%, and allocate “opportunistically” rather than “chase that target”.

The committee said that although inflation was low at the moment, it wanted to build in protection for the future, and detailed the changes in an announcement on the fund’s website.

The pension’s equity component is to be reduced from 53% to 51%, while the fixed income section is to be sliced from 20% to 16%.

“Strategic asset allocation is the single most important factor in determining the overall rate of return for investments over the long term,” said CalSTRS CIO Chris Ailman. “By adopting this long-term asset mix, the committee reaffirms the plans we established after the financial crisis of 2008.”

The fund will continue to make investment in infrastructure projects and will “incubate a small allocation to commodity managers and over time, as opportunities arise, will expand the inflation-linked portfolio”.

The fund’s investment committee came to the decision after carrying out a year-long study into what was needed in its portfolio. Vice Chair Sharon Hendricks said: “This study was invaluable in familiarizing our board members with the elements and dynamics of our portfolio. Our examination of the market allows us to adapt and to coax consistent long-term growth from a chaotic environment.”

In this latest shake-up, CalSTRS has allocated a further one percentage point to both private equity and real estate, pushing their share of the portfolio to 13% each.

In June, the investment committee pushed back a vote it had been due to hold on a risk-factor model for making portfolio decisions, due to too few members being present.