In an effort to beef up returns in its $30 billion bond portfolio, the California State Teachers Retirement System (CalSTRS) is considering hiring managers to handle bank debt, convertible bonds and structured credit products. CalSTRS, which has $115 billion in assets under management, is also considering fixed-income-based hedge funds, emerging market debt and derivative-based strategies.
CalSTRS' director of fixed income, Michelle Cunningham, said the strategies are under consideration as part of the fund's 2004-5 business plan. Investment officers at the fund believe the economic environment will be difficult for bond investors, as interest rates are expected to rise.
Plan sponsors and investment consultants have been eyeing bank loans as a stand alone investment since the start of this year, spurred by the prospect of rising interest rates. John Geissinger, cio of Bear Stearns Asset Management predicted in February a migration from high yield mandates to bank loan mandates (LMW, 2/27).
Cunningham said outsourcing is 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.