An investment strategy such as CalSTRS is considering raises the question of whether such a move would hamper the fund’s ability to meet its investment target of 7.5%.

By Dean Starkman and Melody Petersen
September 2, 2015

The California State Teachers’ Retirement System, the nation’s second-largest public pension system, is considering a new strategy that would shift up to 12% of its $191-billion portfolio into safer investments, such as long-term Treasury bonds.

The strategy is one of the most aggressive actions by a major public pension fund to lower its risk of losses, especially from stock markets.
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The potential moves, discussed in a meeting of the fund’s investment committee Wednesday, are part of a proposal broached by the fund’s staff and consultants for creating a complex, highly managed portfolio to mitigate risk.

Under the plan, CalSTRS would move up to $20 billion in ways that would enable it to maintain its target of earning returns of 7.5% a year on its investments.

The strategy offers “significant diversification benefits” to offset the risk of more volatile asset classes, such as stocks, real estate, private equity and fixed income, according to a CalSTRS study posted on its website.

The questions of whether to adopt the strategy and how much to allocate to the program are “the most significant potential change to the current portfolio” currently under consideration, the study said.

No decision was made on the strategy, and officials said in the meeting that there was no need to rush into a decision.

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