CalSTRS Ponders Collaboration for Private Market Investments

Ailman says efforts under discussion with three West Coast and three global pension plan officials.

California State Teachers’ Retirement System (CalSTRS) Chief Investment Officer Christopher Ailman said that he and investment staff of the $222.5 billion retirement plan have been meeting with other pension plan officials to discuss a collaborative effort to invest in private markets.

Ailman would not name the pension plans, but told the CalSTRS Investment Committee on Wednesday that senior CalSTRS private market officials have been working over the last year with officials of three public pension plans north of CalSTRS headquarters in West Sacramento, California, on a collaborative private markets investment effort. He said one meeting took place as recently as last week.

While Ailman would not name the pension plans, the two largest retirement plans investing in private markets north of CalSTRS are the $76.5 billion Oregon Public Employees Retirement Fund and the $98.9 billion Washington State Investment Board. Prior to joining CalSTRS in 2000, Ailman was the CIO for the Washington State Investment Board.

In a separate development, Ailman said he met last week at the Milken Global Conference in Los Angeles with officials of three global pension plans in separate meetings to discuss private market collaborative investment efforts.

“I had three side meetings with other CIOs from other large global funds to talk about this exact issue,” he told the investment committee. Ailman would not offer more specifics on his meetings.

The details of potential collaboration between CalSTRS and other pension plans in private market areas such as private equity, real estate, and infrastructure, haven’t been publicly discussed.

CalSTRS documents presented to the investment committee at its May 9 meeting indicate that CalSTRS is exploring achieving cost-savings by eliminating or reducing the role of external managers in managing private market investments.

CalSTRS paid $792 million in fees to private market managers in 2016, the last full year in which numbers are available.

CalSTRS has been studying alternative private market investment options over the last year. Virtually all of its private market investments now involve some type partnership with an external investment manager.

Ailman has said that reducing costs is key particularly because his investment staff and consultants have projected a lower return environment in the next decade. CalSTRS has approximately $18 billion invested in private equity, $26 billion in real estate, and $1.5 billion in infrastructure investments.

Like many public pension plans, CalSTRS is underfunded, with a funding ratio around 64%.

Ailman said investment staff will explore over the next fiscal year starting July 1, “what are the challenges, roadblocks, and opportunities” in regard to collaborative investing.

“Each step along the way, the [investment committee] will have the opportunity to say, are we ready to go there, do we like that idea, or do we want to scale that back,” he said.

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