CalSTRS adopted a new global equity investment policy to include the use of an active risk budget.
The investment committee of the $252.4 billion California State Teachers' Retirement System, West Sacramento, adopted the active risk budget to allow staff to move equity investments between passive and active management. CalSTRS had $128.5 billion in global equities as of Dec. 31.
The new global equity investment policy replaces the pension plan's active-passive allocation targets and ranges with a permissible range of active risk for the total global equity composite. The policy-defined active risk budget is now the key guardrail for managing risk by keeping the global equity composite within an approved range to its benchmark. CalSTRS former approach was to use fixed-target allocations to actively managed composites by region.
The active risk budget gives staff more flexibility to invest in the "best opportunities across global markets, regardless of the region," a report to the investment committee said.