Friday, March 6, 2009

CalSTRS approves $6 Billion for innovative assets

According to Arleen Jacobius writing for the online edition of Pensions & Investments, CalSTRS, the California State Teachers’ Retirement System in Sacramento has agreed to invest up to $6 billion in distressed portfolios. The full story (and comments) follows:-
CalSTRS’ investment committee today approved committing $6 billion, or 5% of total system assets, to a new distressed investments portfolio that will include fixed income, real estate and private equity asset classes, said spokesman Ricardo Duran.

About $1 billion of existing investments will be earmarked for the program; the remaining $5 billion would be invested within a year by the $119 billion California State Teachers’ Retirement System, Sacramento.

Funding comes from reducing the system’s strategic target allocation to global stock by five percentage points to 55%. System officials are bumping up allocations to private equity by two percentage points to 9%, real estate by two percentage points to 11% and fixed income by one percentage point to 20%.

CIO Christopher Ailman stressed to committee members that the investments would be solid assets from distressed sellers who need to liquidate assets, said Mr. Duran, who attended the meeting. The staff is considering some residential mortgage vehicles but promised to return to the board with any recommendations.

Also today, the committee unanimously approved investing up to $2 billion in what system officials call an “innovation portfolio,” investing in opportunities that are outside traditional asset classes, Mr. Duran said. The investment committee approved the new portfolio without discussion. END
Comments: The $6 billion allocation, while substantial, is not really as innovative as it may first seem. Billionaire Warren Buffet made mostof his profits from just such investments i.e. buying quality assets when there was blood in the streets.
If we talk about really innovative assets - think of buying exclusive, but fully transferrable Millionaire Club Memberships during depressing economic times like we have now for resale when things improve. These assets have historically gained around 23% per annum.
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