CalSTRS to Cut Public Equity Allocation in Favor of Private Markets

The retirement system will decrease its public equity market allocation by eight percent, according to plan documents.

Chris Ailman (Chris Goodney/Bloomberg)

Chris Ailman

(Chris Goodney/Bloomberg)

The California State Teachers’ Retirement System is moving money from public to private markets as a part of an updated asset allocation strategy.

CalSTRS plans to decrease its allocation to the public equities market by eight percentage points to invest more money in private equity, real estate, and what the retirement system calls “inflation-sensitive real assets.”

This move follows a decision by CalSTRS’s peer, the California Public Employees’ Retirement System, which increased its private equity commitments by $1.4 billion during fiscal year 2018-2019. CalPERS would need to commit another $10 billion per year to stay on track with its allocation target, plan documents showed.

While CalSTRS isn’t making such a drastic change, the move nonetheless marks a shift. The CalSTRS board’s plans to change its long-term allocation strategy were approved in November, but at January 30 meeting, board members discussed how to implement those changes.

CalSTRS plans to decrease its public equities allocation from 50 percent, which was the allocation on November 1, 2019, to 42 percent, according to the plan revision.


Doing so will allow the plan to increase its allocation to private equity from 9.4 percent to 13 percent. The retirement system will increase its allocation to real estate from 13.9 percent to 15 percent, the plan revision shows.

CalSTRS also plans to increase its allocation to inflation-sensitive real assets from 2.7 percent to 6 percent, an increase of 3.3 percentage points, the plan revision shows. This asset class includes global inflation-linked bonds and securities and infrastructure investments, according to the plan revision.

[II Deep Dive: The Reason CalSTRS Paid Less to Invest in 2018]

“CalSTRS has learned from experience that setting a rigid timeline is inefficient as investment opportunities ebb and flow and do not follow a calendar time frame,” the plan documents stated.

To solve for that, CalSTRS said it would make these changes in slow steps, at the recommendation of its consultant, Meketa Investment Strategies, the plan revision shows. For instance, it plans to gradually decrease its public equity allocation from 51 percent to 49 percent, then to 47 percent, and so on.

“If investment opportunities present themselves then staff will move quicker,” according to the plan revision. “However, if a steady allocation is more prudent, such as the allocation to private equity, where time diversification is critical, then an opportunity-based approach is more appropriate.”

A spokesperson for CalSTRS declined to comment on its allocation strategy.