CalSTRS Seeks Commodity Investments

The US's second-largest public pension fund is eying commodity investments as a hedge against the risk of inflation.

(June 1, 2010) — The California State Teachers’ Retirement System (CalSTRS) is expected to make its first investment in commodities to combat the risk of increasing inflation while critics worry large investors contributed to the inflation of commodity prices in 2008 when oil, wheat, cotton and other markets swelled. according to the Financial Times.

The move reflects a burgeoning investor desire for raw materials as US federal commodities regulators evaluate the merits of imposing limits on institutional investors’ exposure to raw material markets, the FT reported. CalSTRS’ pull toward commodities follows the investment of the $198.7 billion California Public Employees’ Retirement System (CalPERS), in the asset class.

CalSTRS is expected to vote on Thursday on whether to adopt staff recommendation and move forward with a long-term allocation or decline to adopt the strategy, said fund spokesperson Ricardo Duran to ai5000. The fund will add bulk goods such as oil, sugar and copper to its $138.5 billion portfolio of equities, bonds, real estate and private equity.

Amid an uncertain economic climate, opinions are mixed on whether inherently volatile commodities will in fact serve as a hedge against inflation. A Bloomberg article published today exposed how concern about China may explain a recent sell-off in commodities, which have suffered the biggest drop since Lehman Brothers Holdings Inc. collapsed. “As risk-taking falls, expected growth is reduced,” said Colin P. Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, to Bloomberg. “Demand for commodities is going to be softer than it might otherwise have been.”

John Kinsey, who helps manage $995 million at Caldwell Investment Management Ltd. in Toronto, added that he sees uncertainty as the biggest problem, with commodities “being attacked with these concerns about the debt situation in Europe and the steps that China has taken to tighten,” he said to Bloomberg. “People are afraid this is going to slow the economy. It’s hard to see a way out of it.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742