CalSTRS Tackles Opioid Crisis | Chief Investment Officer

The California State Teachers’ Retirement System (CalSTRS) is taking a role in engaging corporate boards and management of opioid manufacturers, distributors, and pharmacy retail chains it owns in its $115.5 billion global equity portfolio, shows a new pension system report.

The report, which details the activities of the pension plan’s sustainable investment and stewardship strategies team, notes that CalSTRS will be in discussions with 10 companies in the 2019 proxy season as part of a coalition with other institutional investors called the “Investors for Opioid Accountability.”

The coalition will actively engage in shareholder resolutions at the companies aimed at helping stem the global opioid epidemic, the report said.

The report does not specifically name the companies with which CalSTRS is currently engaged.

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CalSTRS, the second-largest US pension plan with $227.8 billion in assets, normally does not disclose which companies it is engaging with as part of its corporate governance efforts. It has taken a behind-the-scenes approach, arguing that quiet engagement is better than public embarrassment.

Pension plan investment committee documents, however, offer a rare inside look at CalSTRS’s engagement program with one corporation involved in opioid distribution.

The documents show that the pension system’s investment staff met with McKesson, one of the big three drug distributors in the US, last summer to discuss actions the company “has taken to address the opioid epidemic.”

The meeting also addressed compensation of the firm’s top executives relative to their actions in trying to stop opioid abuse and the company’s role in distributing the drugs, the documents show.

“McKesson has pledged $100 million to a recently formed foundation; created a Special Review Committee on the board consisting of three independent board members; released the findings and recommendations of their internal investigation; and implemented a number of oversight and compliance improvements and other company-led initiatives,” the CalSTRS material said.

CalSTRS investment officials also said that McKesson officials codified the board compensation committee’s consideration of regulatory, compliance, and legal issues relative to opioids when making executive compensation decisions.

The CalSTRS material does not mention that the company, in its own internal review last year, rejected allegations that its senior management promoted a culture that helped lead to the opioid crisis.

The pharmaceutical distributor doesn’t mention engagement with CalSTRS on its website but does state last year that it created a foundation called Foundation for Opioid Response Efforts (FORE) and contributed $100 million to the organization.

“The opioid epidemic won’t be solved by any one participant or idea,” the company said. “McKesson is partnering with others to deploy the best thinking across the country and advance meaningful solutions.”

The CalSTRS report said at the end of 2018, the pension plan, as part of The Opioid Accountability Coalition, has collaborated with other institutional investors on engagements with 17 opioid distributors, manufacturers, and retail pharmacy chains, and achieved reforms with 13 of those companies.

Since 2017, the coalition has filed 33 resolutions and reached a settlement with 28 of those companies, the report said.

The CalSTRS report said the coalition is a diverse group of global institutional investors with 54 members representing $3.5 trillion in assets under management.

The coalition was established in July 2017 to engage with companies on opioid business risks that have implications for long-term shareholders, communities, and the economy, the CalSTRS report said.

A membership list shows that the New York State Common Pension Fund is the only other public fund that is part of the coalition. Other members include unions, health care retirement trusts, various state and city controller offices, and treasurers’ offices.

Tags: CalSTRS, McKesson, Opioid Crisis, Pension

The $154.3 billion Teacher Retirement System of Texas is on schedule with its staffing and happy with acclimating new hires to its work culture for its in-house private equity plans.

“One of the main concerns we had was our ability to hire staff as quickly as we’d have liked,” said Jerry Albright, the Texas fund’s chief investment officer, at its April board meeting. “I am pleased to report today that we are on schedule with our hiring.”

The fund plans to hire 32 people in 2019 for its expansion strategy known as “Building the Fleet.” So far, 15 new hires have accepted gigs at the Texas fund, which has sent 18 total job offers as of its Thursday board meeting. It plans to hire the remaining candidates throughout the year.

Texas Teachers’ has mostly been hiring analysts and associates, with a bulk of the recruiting success coming from external firms. The firm has also been doing media rounds and partnering with Howard University to hire new graduates. “We’re very happy with our hiring strategy,” Albright said, adding that Texas Teachers’ has “spent a lot of time” on finding new employees who are both cultural and functional fits.

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The fund has started an “on-boarding plan” which focuses on getting new hires used to the work culture via career paths and motivation strategies. “When you bring in new people they have to get acclimated to the culture and then you have to reinforce the culture with the people that are already there,” Albright said.

“Building the Fleet’s” master plan is to shift 30% to 50% of Texas Teachers’ private market portfolio in-house. Texas also wants to manage more illiquid investments internally, and has been discussing whether it should add 120 members to its investment division over the next five years, nearly doubling the staff of 150.

Restructuring the investment staff is part of a bigger move among public pension funds. The objective is to cut costs on management fees and achieve better returns to ensure payouts as baby boomers begin to retire. This management style is common in Canadian plans.

“We’ve continued to hit this area pretty hard and we’ve been really successful so I’m really happy with that,” said Albright.

The fund currently allocates 13% to private equity.

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Tags: Board Meeting, Building The Fleet, Jerry Albright, Pension, Texas, Texas Teacher Retirement System (TRS)