CalSTRS Considering Risk Mitigation Strategy, May Move $20 Billion Out of Stocks

Earlier this week, Pension360 covered CalPERS’ plans to take a more conservative approach to investing in the coming years, which includes a higher allocation towards fixed-income.

Now it appears CalSTRS is having similar discussions; the board is considering a “risk mitigation strategy” that would involve moving $20 billion out of equities.

From the New York Times:

For years, financial planners have advised their clients to reduce their stock market plays as they age. Buying and holding high-quality bonds may seem less rewarding, but it could protect retirees from gyrations when a big loss of principal would be devastating.

[…]

The board of the California State Teachers’ Retirement System, known as Calstrs, is discussing whether it would be best to shift as much as $20 billion of its portfolio out of stocks and even out of some fixed-income positions, in favor of something new, a “risk mitigation strategy.”

The strategy is not a new asset class but an approach. At a meeting on Wednesday, consultants told the trustees that it could involve holding very safe securities like Treasury securities, using hedge funds, or shifting money into assets expected to rise in value during stock bear markets.

Many corporate pension funds have adopted some form of risk mitigation, but the approach is seldom seen among public pension funds.

The discussion took place against the backdrop of a profound demographic shift in Calstrs. The number of California teachers who are drawing their benefits has been rising every year, and they are enjoying longer, healthier life spans than actuaries predicted in the past.

CalSTRS is the second-largest pension fund in the U.S., and managed $191.3 billion in assets as of July 31, 2015.

Photo by Stephen Curtin via Flickr CC License