From ai5000 Magazine: Eric Upin, CIO, Makena Capital Management

Upin -- formerly at the Stanford Management Company and Sequoia Capital and now Chief Investment Officer at Menio Park-based Makena Capital Management -- spoke with ai5000 in defense of the much maligned endowment model.

To answer your question directly: The genesis of Makena is twofold, the first being an appreciation of the endowment model, the second being that, while at Stanford, a number of outside entities wanted access to the investment management of the University. The University turned the second down as impractical. The endowment model, as we see it, is for very long-horizon pools of capital, and must meet three objectives: support of current operations through payouts, maintaining purchasing power for tomorrow’s generation, and growing the asset base. The first two goals are often diametrically opposed to each other, which presents a challenge. This challenge is met with certain targets in mind: a 5% payout, 3% to 4% inflation, and 2% to 3% growth per year. You need substantial amount of equity factor risk to achieve this—fixed income alone cannot meet this objective. So, a global, multi-asset-class portfolio with a true focus on diversification is the goal: If you have patience and tolerance for lower levels of liquidity, you can, historically, meet these demands.

To read the rest of the magazine article, click here.

CalSTRS Thanks Alternatives for Positive Returns

The pension credited its 12.3% return for the 2009 to 2010 fiscal year to a greater allocation to alternative investments.

(July 21, 2010) — The $129.8 billion California State Teachers’ Retirement System (CalSTRS), the nation’s second-largest public pension fund, posted its first gain in three years, partly attributing its growth to successfully boosting its allocation to alternatives.

“We’ve taken steps to position the portfolio for long-term growth, but we’re not out of the woods yet,” said Chief Investment Officer Christopher Ailman. “The American economy suffered a near-death experience in 2008, and it’s going to take some time to fully recuperate from that. This year’s performance is a solid start along that road to recovery.”

In the year ended June 30, the plan returned 12.3%, boosted by a 21.7% return in its private equity portfolio. After falling by about 25% in its last fiscal year, the CalSTRS Board and investments staff is seeking recovery by:

  • Expanding its target asset ranges to avoid having to sell at a loss.
  • Temporarily shifting 5% of the portfolio from global equities to fixed income, real estate and private equity to take advantage of the distressed market.
  • Permanently shifting 5% of the portfolio from global equities to create a new absolute return asset class for inflation-protection.
  • Adopting a new asset allocation mix to further diversify the portfolio and decrease its stake in the global stock market.
  • Launching the Innovations and Risk unit to explore new investments such as a macro global hedge fund strategy, commodities and microfinance.

As of June 30, 2010, the portfolio holdings consisted of 51.7% in U.S. and non-U.S. stocks, 22% in fixed income, 14.5% in private equity, 10.1% in real estate, 0.9% in absolute return assets and 0.8% in cash. Its five-year strategic asset allocation targets are 47% U.S. and non-U.S. equities; 20% fixed income; 15% real estate; 12% private equity; 5% absolute-return strategy for inflation protection, including hedge funds, infrastructure and commodities; and 1% cash.

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Separately, the fund today issued a statement applauding financial regulatory reforms, joining with its partner state pension funds and plan sponsors in applauding meaningful financial regulatory reforms signed into law today by President Obama.

“We now have in place safeguards to help prevent a repeat of the 2008 market collapse which has hurt all investors, large and small,” the fund said in a statement. “We also have tools for investors that will bring appropriate transparency, accountability, and management of risk at the corporate level. Regulators and investors must remain vigilant and alert to restore and maintain the integrity of our capital markets and the accountability of its participants.”



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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