Key Takeaways
- • CalSTRS CIO Scott Chan outlined at the Nov. 4 investment committee meeting how the proposed "one fund approach" would let the $417.7 billion pension fund make faster allocation decisions between its four-year strategic asset allocation reviews.
- • Chan cited the rapid growth of private credit as an example of how the current four-year cycle can cause the fund to miss opportunities, noting that approval and implementation timelines can outlast the opportunities themselves.
- • The approach is designed to scale alpha and portfolio construction, capitalizing on relationships that span asset class lines, increasing real asset and geographic diversification, and using leverage to fund growth-diversifying assets, according to Nov. 4 board materials.
- • Greater staff delegation would likely be required, though the investment committee would still set the limits of its own delegation; trustee Karen Yamamoto questioned whether the approach amounted to a "blank check."
- • An asset-liability study will produce recommendations in September 2027, potentially extending to November, and substantial investment policy changes are unlikely to be considered before then.
Summary
CalSTRS Chief Investment Officer Scott Chan provided further detail on the proposed "one fund approach" at a Nov. 4 investment committee meeting, describing a model that could change how the $417.7 billion California State Teachers' Retirement System constructs, implements and manages allocations between periodic strategic reviews. According to Pensions & Investments, the fund currently sets asset class targets every four years, a cadence Chan said is out of step with markets that move on much shorter horizons. He first described the concept in an April interview with Pensions & Investments, characterizing it as an evolution in portfolio management rather than a sudden shift.
Chan used the proliferation of private credit as an example. Staff spent several years studying the asset class before incorporating it into the fund's allocation structure, and by the time changes are approved and implemented, Chan argued, opportunities may have evolved. According to Nov. 4 board materials, the goals of the proposed model include scaling alpha and portfolio construction, drawing on relationships that span traditional asset class lines to source investment opportunities and deal flow, and increasing allocations that diversify growth risk, real assets providing inflation protection and cash flow, and geographic diversification. The materials also reference using leverage to fund growth-diversifying assets without increasing total risk.
Chan indirectly contrasted the approach with the total portfolio approach (TPA) adopted by pension systems such as CalPERS, whose board formally adopted a TPA in November 2025. CalSTRS deliberately avoided the TPA label, he said, because of the many versions now in the marketplace and to preserve the committee's ability to develop a custom approach. He also argued that some organizations adopting a total fund approach may be overlooking bottom-up fundamental expertise within their divisions, describing CalSTRS's model as "a flywheel" rather than one approach dominating the other.
Governance was a central topic. Chan said the approach would likely require policies that give staff more flexibility to construct allocations dynamically, while the committee retains the right to determine the scope of any delegation. Trustee Karen Yamamoto questioned whether the approach would effectively give the committee a blank check across other investments, and Josh Diedesch, director of the Total Fund Management Division, responded that the approach would change how risk limits are defined rather than eliminate them. The committee agreed to work with consultant Meketa Investment Group on dedicated educational sessions for trustees. Chan noted that the fund has already created the Total Fund Management division led by Diedesch and expects staffing growth, but did not describe a restructuring of the investment office.
CalSTRS is launching an asset-liability study expected to produce recommendations in September 2027, which could extend to November. Chan said any substantial investment policy changes tied to the approach would most likely not be considered before that timeline. As of Sept. 30, the fund's actual allocation was 42.8% public equity, 13.8% private equity, 12.1% real estate, 12% fixed income, 9% risk mitigating strategies, 7.2% inflation sensitive, 2.1% collaborative strategies, 0.69% cash and liquidity, and 0.14% strategic overlay.
Chan used the proliferation of private credit as an example. Staff spent several years studying the asset class before incorporating it into the fund's allocation structure, and by the time changes are approved and implemented, Chan argued, opportunities may have evolved. According to Nov. 4 board materials, the goals of the proposed model include scaling alpha and portfolio construction, drawing on relationships that span traditional asset class lines to source investment opportunities and deal flow, and increasing allocations that diversify growth risk, real assets providing inflation protection and cash flow, and geographic diversification. The materials also reference using leverage to fund growth-diversifying assets without increasing total risk.
Chan indirectly contrasted the approach with the total portfolio approach (TPA) adopted by pension systems such as CalPERS, whose board formally adopted a TPA in November 2025. CalSTRS deliberately avoided the TPA label, he said, because of the many versions now in the marketplace and to preserve the committee's ability to develop a custom approach. He also argued that some organizations adopting a total fund approach may be overlooking bottom-up fundamental expertise within their divisions, describing CalSTRS's model as "a flywheel" rather than one approach dominating the other.
Governance was a central topic. Chan said the approach would likely require policies that give staff more flexibility to construct allocations dynamically, while the committee retains the right to determine the scope of any delegation. Trustee Karen Yamamoto questioned whether the approach would effectively give the committee a blank check across other investments, and Josh Diedesch, director of the Total Fund Management Division, responded that the approach would change how risk limits are defined rather than eliminate them. The committee agreed to work with consultant Meketa Investment Group on dedicated educational sessions for trustees. Chan noted that the fund has already created the Total Fund Management division led by Diedesch and expects staffing growth, but did not describe a restructuring of the investment office.
CalSTRS is launching an asset-liability study expected to produce recommendations in September 2027, which could extend to November. Chan said any substantial investment policy changes tied to the approach would most likely not be considered before that timeline. As of Sept. 30, the fund's actual allocation was 42.8% public equity, 13.8% private equity, 12.1% real estate, 12% fixed income, 9% risk mitigating strategies, 7.2% inflation sensitive, 2.1% collaborative strategies, 0.69% cash and liquidity, and 0.14% strategic overlay.
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