Giant U.S. Pension Fund to Propose Shift Away From Stocks, Bonds
September 02 2015 - 02:20PM
Dow Jones News
The nation's second-largest pension fund is considering a
significant shift away from some stocks and bonds amid turbulent
markets world-wide, one of the most aggressive moves yet by a major
retirement system to protect itself against another downturn.
Top investment officers of the California State Teachers'
Retirement System have discussed moving as much as $20 billion, or
12% of the fund's portfolio, into U.S. Treasurys, hedge funds and
other complex investments that they hope will perform well if
markets tumble, according to public documents and people close to
the fund.
The board of the $191 billion system, which is known by its
abbreviation Calstrs, is expected to discuss the proposal at a
meeting later today in West Sacramento, Calif. A final decision
won't be made until November.
The new tactic—called "Risk-Mitigating Strategies" in Calstrs
documents posted on its website—was under discussion for several
months as the fund prepared for a scheduled three-year review of
how it invests assets for nearly 880,000 active and retired school
employees. But the recent volatility around the world has provided
a fresh reminder of how exposed Calstrs' investments are when
markets swoon.
Pension funds across the U.S. are wrestling with how much risk
to take as they look to fulfill mounting obligations to retirees,
and the fortunes of most are still heavily linked with the ebbs and
flows of the global markets despite efforts to diversify their
investments. State pension plans have nearly three-quarters, or
72%, of their holdings in stocks and bonds, according to Wilshire
Consulting.
Calstrs' proposed moves differ from a strategy unfolding roughly
a mile away at the California Public Employees' Retirement System,
which is the nation's largest public pension fund. That
Sacramento-based system, known by its abbreviation Calpers, decided
last year to exit all hedge-fund investments. Other pensions
seeking to become more conservative have beefed up stakes in bonds
or international stocks.
Calstrs Chief Investment Officer Christopher Ailman said in an
interview he hopes the potential shift could help stub out heavy
losses during gyrations because the investments don't generally
track as closely with market swings.
The Calstrs documents propose a range of potential amounts that
could be devoted to the new "Risk-Mitigating Strategies" investment
category, from zero percent to 12%. In addition to Treasury bonds
and hedge funds, the new holdings could include so-called
liquid-alternative funds that mimic hedge-fund strategies,
according to people close to the fund.
"I'll equate this to the cost of insurance," Mr. Ailman said.
"It's the idea of adding more of a hedging asset class into the
portfolio."
Calstrs has not made any major moves in recent weeks amid the
turmoil in China and the U.S. markets. Mr. Ailman said he knew
there would be turbulence after Asian markets tumbled last month,
but he said Calstrs chose to stay put because it views itself as a
long-term investor and because its largess means it has limited
countermoves when stock prices fall.
Write to Timothy W. Martin at timothy.martin@wsj.com
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(END) Dow Jones Newswires
September 02, 2015 14:05 ET (18:05 GMT)
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