CalSTRS Is Skeptical About the Market Rebound

Chief investment officer Chris Ailman said that CalSTRS is hoping for a U-shaped recoveryduring the retirement system’s Thursday board meeting.

Christopher Ailman (Christopher Goodney/Bloomberg)

Christopher Ailman

(Christopher Goodney/Bloomberg)

Amid the coronavirus pandemic and subsequent market volatility, the California State Teachers’ Retirement System’s investment returns are “pretty flat” for the year, according to chief investment officer Chris Ailman.

However, the retirement system remains cautious about the recent market upturn, Ailman said at CalSTRS’s board meeting on Thursday.

“Even though we saw a strong rally in that bear market, we’re still in a recession,” Ailman said. “The market rebound has been nice to see, but we’re a tad more skeptical.”

According to Ailman, that means the retirement system will keep its cash position steady and remain underweight to equities. The pension fund had announced in February that it would decrease its allocation to public equities by eight percentage points in favor of investing more money into private equity, real estate, and other asset classes.

[II Deep Dive: CalSTRS Beats Benchmark Thanks to Strong Equity Returns]

As for what the market recovery from the pandemic will look like, Ailman said that the stock market right now is showing a “V-shaped” rebound in which the market hits its bottom and immediately ticks back up. According to Ailman, the stock market has priced in an expectation that social distancing won’t last through the summer.


“The market is pricing in the absolute best scenario,” Ailman said. “We’re more skeptical of that.”

He said that CalSTRS is expecting a more U-shaped recovery, in which prices bottom out for a time, but then move back up.

“Since this is a medical crisis and the medicine for it is social distancing, it’s unclear how long it will take,” Ailman said.

CalSTRS’s investment portfolio value fell from $254.1 billion on December 31, 2019 to $243.2 billion as of February 29, according to the two most recent chief investment officer reports. The portfolio’s allocation to public equities declined from 50.6 percent at year-end to 47.1 percent at the end of February, those reports show.

For the first time, two of the retirement system’s top public equities holdings were stocks in emerging markets, Ailman said Thursday. The chief investment officer report shows that 0.7 percent of CalSTRS’s public equity portfolio is invested in Samsung Electronics, which is headquartered in South Korea, while another 0.7 percent is allocated to China-based Alibaba Group.

“The market has been very concentrated in shelter-in-place stocks,” Ailman said, adding that this concentration likely won’t last when social distancing ends.