| NEW YORK, April 26
NEW YORK, April 26 Record high U.S. stock prices
are providing the California State Teachers' Retirement System
with profit-taking opportunities as it cuts exposure to U.S.
equities and moves money off shore, the plan's chief investment
officer told Reuters on Wednesday.
Christopher Ailman, the chief investment officer of CalSTRS,
as the system is known, said he did not see the U.S. economy as
growing much beyond a 1-2 percent range, although he hopes it
can average 3 percent in the years ahead.
"We have enjoyed obviously the benefits of this equity rally
in the USA, but we still don't think the US economy is that
strong," Ailman said in an interview while visiting investors in
"We have been shaving off profits in the U.S. equity market
every time we hit new highs like this and rebalancing into
Europe and Asia," said Ailman, who oversees $200 billion in
Earlier on Wednesday the benchmark S&P 500 stock index
traded above its record closing high, but tipped down by
the close after the Trump Administration unveiled the basic
outline of its proposed tax reforms that calls for a slashing of
business tax rates.
"We are going to stay at about 50 to 55 percent global
equity exposure. We had a home country bias to the USA for the
last, almost, decade. We were 65 percent US. We are reducing
that down to where eventually it will be about 55 percent US, 45
CalSTRS has looked to real estate and infrastructure for
opportunities to deliver returns closer to 8 percent. Ailman
said real estate was “almost priced to perfection,” and the fund
had become a net seller of that asset.
Infrastructure has been trickier but nonetheless important
to the pension fund, which has about $3 billion worth in the
portfolio, Ailman said.
CalSTRS, like most U.S. public pension funds and other large
institutional investors, prioritize infrastructure deals that
generate long-term, stable cash flows. But those deals are
scarce and often overpriced. The majority of transactions are in
Canada, Australia and the United Kingdom, despite the critical
need for more infrastructure investment in the United States.
“We’re hopeful. I’ve never seen such an enormous capital
need and so much capital trying to go to work,” said Ailman.
“There’s an appetite, just not a lot of transactions.”
U.S. public pension funds are under increasing pressure to
return investment around 7 percent without taking on too much
risk. Mature funds like CalSTRS pay out more in benefits to
retirees than collect in contributions from current workers.
Because of this negative cashflow, CalSTRS must be more
attentive to short-term, downside risks, said Ailman.
In response to these risks, CalSTRS created a risk
mitigation strategy to be more resilient to market downturns.
The strategy, which focuses on being less correlated to
global stocks and economic downturns, uses 30-year government
bonds, commodity trading advisors (CTA) and global
macroeconomics focused hedge funds.
Ailman hopes the strategy will reach a target allocation of
9 percent by June 2018 from its current 4 percent level.
(Reporting By Daniel Bases in New York and Robin Respaut in San
Francisco; Editing by Chris Reese)