The $115 billion California State Teachers Retirement System is considering hiring fixed-income managers to invest in bank debt, convertible bonds and structured credit products, as well as fixed-income-based hedge funds, emerging market debt and derivatives based strategies. Michelle Cunningham, CalSTRS' director of fixed income, said the strategies are under consideration as part of the fund's 2004-5 business plan in an effort to beef up returns in its $30 billion bond portfolio. The plan is thinking about adding yield kickers to its portfolio now on the view that the coming economic environment will be difficult for bond investors, as interest and inflation rates are both expected to rise.
The fund's high-yield bond portfolio currently is handled by outside managers, while its investment-grade fixed-income portfolios are managed in-house in passive accounts. In the 2001-2 fiscal year, the fund made its first allocation to high-yield for diversification.
Cunningham added that outsourcing was an option, and that the plan will conduct a study to see whether hiring outside managers is warranted. "This could definitely involve outsourcing assets to external managers but not necessarily...If we do decide to participate in some of these investments, whether they will be managed internally or externally--or some combination of the two--will be part of the study." The fund has not yet discussed mandate sizes. Pension Consulting Alliance advises the fund.