Chris Ailman, CIO of the California State Teachers’ Retirement System, presented his final CIO report at the CalSTRS board meeting Wednesday, voicing worries about federal debt expenses and hope about artificial intelligence’s effect on the economy.
Ailman, who had presented 175 CIO reports since he joined CalSTRS in 2000 as CIO, was commended by CalSTRS staff and beneficiaries for his 24 years of service to the fund.
“We want to thank you for all that you have done for these past 24 years, we are eternally grateful to have gotten to know you, we are fortunate to have you, a strong and steady hand at the helm of CalSTRS,” said Harry Keiley, CalSTRS board chair at the meeting.
“Christopher throughout his career has demonstrated the attributes of diligence and revere intellect and dedication to the interest of CalSTRS members and their families,” said Frank Ruffino, a board member.
“Let me add my voice to the voice of so many others in praising you Chris, in your decades of hard work safeguarding the livelihoods of hundreds of thousands of our California educators,” said California Governor Gavin Newsom in a prerecorded video shown at the meeting. “Congratulations Chris on a remarkable and impactful career and more importantly, a truly well-deserved retirement.”
This week, the board of CalSTRS interviewed two finalist candidates who could potentially be successors to the long-tenured Ailman. A successor is expected to be announced before July.
CIO Report
Ailman announced that the fund had $336.2 billion in assets at the end of March 2024, up around 15 billion year-to-date.
The investment chief also noted that the top mega-cap stocks were responsible for about half of equity growth, pointing to the outperformance of Magnificent Seven, the group of large tech stocks that incudes Microsoft and Nvidia, and the divergence between the Russell top 50 mega-cap index and the Russell 3000, two indexes that were correlated until March 2023 when the AI hype began.
“It doesn’t mean it’s a bubble,” Ailman said, referring to the fast growth of the Mag Seven because of the AI rally. “Artificial intelligence is real, and it is a radical change … so those stocks may continue to win.”
Ailman said there are three things that will define the future, topics that he worries about as he leaves his CIO role. The first is U.S. debt as a percentage of gross domestic product, which Ailman says will be 3%. The productivity boost and job disruption of AI, and climate change, are next on his list.
“With that, I am pleased to give my last and final CIO report, it’s been an honor to serve you and I am glad to pass the baton,” Ailman said. “I know without question that I am leaving you in excellent hands. This team is fantastic, so I am very comfortable stepping off the ship and seeing you guys take off and doing even better.”
New Policy Targets
At the meeting, the CalSTRS board adopted a new policy target to boost its allocation to direct lending. The fund increased its fixed-income target to 13% from 12%, planning to support direct lending and to decrease its equities allocation by 1%.
In its new asset allocation, CalSTRS will allocate 40% to public equity, a decrease of one percentage point, 14% to private equity, 15% to real estate, 6% to inflation-sensitive securities, 10% to risk-mitigating strategies, 13% to fixed income (an increase of one percentage point) and 2% to cash and liquidity.
In the long-term, CalSTRS has a strategic target allocation that would see public equities decrease to 38%, private equity, real estate, and risk mitigating strategies stable at 14%, 15%, and 10% respectively, fixed income increased by 1% to 14%, and cash and liquidity stable at 2% of the portfolio.
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Tags: allocation, California Teachers’ Retirement System, CalSTRS, Chris Ailman, CIO, Harry Keiley, Magnificent Seven