CalSTRS Board Questions Costs of Advancing Collaborative Investment Model

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The initial phase of the model is already saving the state of California’s teachers’ retirement system nearly $300 million a year in fees, CIO Christopher J. Ailman said at the board meeting. July 7 investment.

Collaborative Model 2.0, and eventually 3.0, could more than double those savings to $700 million per year or more over the next 10 years, Ailman said.

The difference between the initial version of the model and version 2.0 includes the expansion of co-investments in private equity, ownership in real estate companies, separate accounts and co-investments in infrastructure, and the internal investment of Global Equity, Fixed Income and Risk Mitigation Strategies, According to a Report to the Investment Committee.

CalSTRS held $126.5 billion in global equities, $49.1 billion in real estate, $46.9 billion in private equity, $33.3 billion in fixed income, $31.7 billion in risk mitigation strategies and $17 billion in inflation-sensitive assets (primarily infrastructure) as of May 31.

But CalSTRS needs to implement the whole model to realize all the savings, he said.

“What’s holding us back are some tough decisions, and you’re already balking at it (the tough decisions),” Mr Ailman said.

Among the next steps in implementing future phases of its collaborative model, CalSTRS officials want to continue hiring executives with investment banking and direct investment skills. This is necessary because the next steps are also about gaining more control, more oversight and taking more risk on their investments, and CalSTRS officials will do all of this during a global energy transition away from fossil fuels, Mr. Ailman.

Much of the concerns of board members centered on the cost of implementing the collaborative model, especially when it comes to increasing employee compensation. In order to do business differently with staff exercising more control over investments, CalSTRS must offer a “competitive salary,” Ailman said.

“It doesn’t have to be the highest payout, but it has to be competitive,” he said.

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