CalSTRS to Rely More on in-House Assets

(July 9, 2010) — In a meeting today, the $132.1 billion California State Teachers’ Retirement System (CalSTRS) will be exploring ways to boost the use of internal asset management, reducing the $140 million in fees the fund paid to external managers in the last fiscal year.

“…We believe there are areas within the portfolio where internal asset management may be more effective and efficient,” said a CalSTRS investments business plan for the 2010-11 fiscal year, written by chief investment officer Christopher Ailman and staff.

The West Sacramento-based system said it will be considering whether to slash the number of external money managers it will use in the fiscal year that started July 1. It will conduct a review of its external managers to make sure it is only partnering with “highest conviction” managers while continuously exploring new sources of alpha.

Currently, outside managers oversee 25% of the fund’s US equities strategies, 50% of its global equity portfolios and 20% of its fixed-income strategies.

CalSTRS staff have already managed a Russell 1000 passive portfolio for more than a decade. In April, it began managing a $500 million Russell 2000 passive portfolio in-house and will now consider managing the remaining of its passive management internally in the first half of 2011.

The meeting will begin at 11:30 am ET (8:30 am PT) today, webcast live from www.calstrs.com, CalSTRS spokesman Ricardo Duran confirmed with ai5000. The fund’s CIO Christopher Ailman will be presenting the business plans.

Other funds have increased the in-house management of its assets to save in external management fees and boost efficiency. Leo de Bever the CEO of Alberta’s AIMco — the corporation created to manage the province’s pension and sovereign wealth fund — spoke positively of internal private equity teams to ai5000. “I paid [US $160 million] in external fees last year,” he said in a December interview. “I think we can cut that down by four times if we move some of it internally.” His outlook mirrors other large Canadian institutions, which have created internal teams to pursue direct investments and avoid external fees.