WORKERS CAPITAL

Calstrs Seeks to Borrow More Than $30 Billion to Manage Cash

Eliyahu Kamisher
Thu, January 4, 2024 



(Bloomberg) -- The California State Teachers’ Retirement System, the country’s second-largest pension fund, may borrow more than $30 billion to help it maintain liquidity without having to sell assets at fire-sale prices, according to a new policy its investment committee will consider this month

If approved, the policy will allow staff to borrow as much as 10% of the roughly $318 billion portfolio. The proposal calls for leverage to be used “on a temporary basis to fulfill cash flow needs in circumstances when it is disadvantageous to sell assets,” a Calstrs policy document said.

Calstrs board members will review a first draft of the policy at its Jan. 11 meeting. A representative for the pension declined to comment.

The California Public Employees’ Retirement System board approved adding 5% leverage in 2021, adopting an investment strategy that could enhance returns but potentially increases the risk of losses during market downturns.

Meketa Investment Group, a Calstrs consultant, said increased leverage poses minimal risk to the fund. Calstrs already leverages 4% of its portfolio, and the new policy would not create a new asset allocation policy. Instead leverage would be used to smooth cash flow and as an “intermittent tool” to manage the portfolio, Meketa said in a board document.

Calstrs is also planning to open a satellite investment office in San Francisco to help attract and retain talent outside of its West Sacramento headquarters. The 5,000-square-foot office will initially house 12 members of the investment team and could accommodate as many as 35 people over the next five years.

“A San Francisco office will not only help to recruit new talent, but it will also help retain current talent by shortening long commute times for staff residing in the greater Bay Area,” Calstrs said.

The pension fund has an annualized return of 7.2% over the past five years, exceeding its 7% return target. In the 2022-2023 fiscal year Calstrs posted a 6.3% net return.

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