CalSTRS Stresses the ‘Importance of Acting Quickly’ to Maintain Funding Progress

In its first five-year report since adopting a funding plan that’s expected to divert its portfolio from the threat of insolvency, the California State Teachers’ Retirement System (CalSTRS) outlined pre-emptive measures that could help the system remain on course.

The plan was adopted in 2014 and is expected to help the pension reach a 99.9% funded ratio by 2046 rather than the previously projected insolvency status by that time. And although everything is working out as planned so far, staff at the pension stressed the importance of being nimble and aware to the three major risks to their plan: longevity risk, risk of declines in membership, and investment risk.

Part of the solution was to allow staff at CalSTRS to adjust contribution rates from beneficiaries, albeit to a certain extent. For the third year in a row, CalSTRS opted to use its discretionary authority to increase contribution rates by 0.5%.

“Acting quickly will be key since providing additional contributions soon after a period of negative investment returns would improve the likelihood that CalSTRS is able to buy in at the bottom of the market and enjoy appreciation in asset values sooner,” the report reads.

For more stories like this, sign up for the CIO Alert newsletter. 

In a simulation where CalSTRS staff were hypothetically allowed discretionary authority to increase contribution rates following the 2008 financial crisis (where the funded ratio dropped nearly 40%), if rates had been adjusted by 1% per year for employers and 0.5% per year for the state immediately following the market crisis, the system would be in a stronger financial position today, funded at about 70% rather than 64%.

The below graph illustrates the theoretical progress:

Source: CalSTRS

“By increasing contributions immediately following a decrease in funding levels, funding levels recover more quickly, and although contribution levels are higher in the short term, long-term contribution levels are lower, generating savings over the long term,” CalSTRS said in the report. “It also illustrates why, if a situation were to develop, acting quickly would be key to minimizing long-term costs and strengthening funding levels faster.”

Meanwhile, the world’s largest educator-only pension plan is also tackling a number of ESG issues such as carbon pricing and battling the US’s opioid crisis.

Related Stories:

CalSTRS Tackles Opioid Crisis

CalSTRS Expected to Support Carbon Pricing

CalSTRS Funding Report Offers Hope for the Future

Tags: CalSTRS, Insolvency, Pension

Three Danish pension funds and one Norwegian plan have invested $700 million in a renewable energy infrastructure fund.

The four Nordic funds, $35.2 billion PensionDanmark, ATP ($125 billion), Laegernes Pension ($134 billion), and Norway’s Kommunal Landspensionkasse ($700 million), will focus their environmental, social, and governance (ESG) efforts on mostly Asian and Latin American infrastructure projects. They are pooling their ESG investments in a new vehicle to manage the money, the Copenhagen Infrastructure New Markets Fund I portfolio.

The infra-fund will also target select countries in Eastern Europe and Africa, its parent, Copenhagen Infrastructure Partners, said in a statement. Targeted projects will include wind, solar, and biomass and transmission grid systems over a 10-year period.

Copenhagen Infrastructure also expects the new markets fund to grow to at least $1 billion before it closes in February.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

PensionDanmark has committed $250 million so far, and ATP, Copenhagen Infrastructure’s newest client of the bunch, is expected to invest about the same. Laegernes and Kommunal have injected the remaining $200 million.

Torben Möger Pedersen, PensionDanmark chief and a member of Copenhagen Infrastructure’s investment committee, called the consortium a “natural next step” to show investors ESG opportunities in new growth markets in Asia and Latin America.

“The investment case is illustrating how to mobilize private capital in large scale to the green transition and thereby contribute to the global climate agenda,” he said.

Niels Holst will be the New Markets Fund’s portfolio manager. He comes from Capricorn Real Assets, a financial advisory firm. Copenhagen Infrastructure has also hired a new team from other institutions to help Holst steer the ship.

Copenhagen Infrastructure Partners has five funds under managements, which hold $8.4 billion in commitments.

Denmark’s ATP Rebounds Big

Denmark Fund Restructures, Merging Private Debt and Alts Units

Tags: ATP, Copenhagen Infrastructure Partners, Denmark, ESG, Infrastructure, PensionDanmark, Renewable Energy