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CalSTRS Delays Vote on Risk-Factor Model

The decision to adopt a four risk-factor model will not be made until at least July.
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(June 10, 2013) – The California State Teachers Retirement System's (CalSTRS) investment committee has pushed back its vote on a risk-factor model for making portfolio decisions until July at the earliest.

The absence of key committee members at the June 6 meeting prompted the vote delay, a CalSTRS' spokesperson told aiCIO. Roughly two-thirds of the seats at the committee table were empty during the afternoon assembly—an unusually thin attendance for the fund's bimonthly board meetings.

The proposed model involves each investment committee member weighting the following four goals for the fund as framework for asset allocation and strategic decisions: 

1.) Return-oriented: Seek relative improvement to the projected funded status path over next 30 years
2.) Return-oriented: Seek to maximize the 20-year geometric real return
3.) Protection-oriented: Avoid significant asset drawdowns within next 10 years
4.) Protection-oriented: Minimize likelihood of pay-as-you-go status beyond 10 years

With three or four key members missing, the committee used its session for further education and debate rather than a vote. CalSTRS' consultants PCA, who recommends the $167 billion pension adopts the framework, presented the results of scenario modeling and discussed the broader aims of the strategy.

"Everything in this portfolio was analyzed against 1,000 market scenarios," said PCA Managing Director Neil Rue, who has previously implemented the model with a number of other public funds. "Then, everything in the portfolio is ranked by its ability to perform under these different scenarios."

Another PCA consultant continued: "The intent of this project is to get individual committee members to express their concerns with through these four factors. The end game is for you to put information in here and have a discussion about it." 

Earlier in the meeting, CalSTRS CIO Chris Ailman had excellent news to report. With 15 trading days to go, he said the fund was on track for a "really remarkable" two-digit return for fiscal year 2013. "We're not going to count our chickens before they're hatched," he cautioned, mentioning the volatile days preceding the meeting, but seemed optimistic for both the one- and three-year returns.

Related Article: CalSTRS Votes of Portfolio Risk Factors