CalSTRS Report, October 5-6, 2021

By Pat Geyer, CalRTA Liaison to CalSTRS

Executive Summary

  1. CalSTRS goals: (1.) Trusted Steward,(2) Business, Customer Service innovator, (3) Sustainable (diversity, organized, good employer, adaptability, ESG principles)
  2. Retirement Board goals are earnings of 8.7% or more with a focus on China
  3. Predictions for 2021-22 are a GNP growth of 5% and inflation of 4%.This business cycle will last for three years and maybe longer

Teachers Retirement Board 10/5

Harry Keeley, CalSTRS Board member presented his goals for CalSTRS.  They are (1) Change – Be prepared for change in leadership. (2) Curiosity – What can CalSTRS become? (3) Compassion – show kindness. (4) Collaboration. And (5) Consensus.

Cassandra Lichnock gave an update.  CalSTRS is making plans to come back to the office.  CalSTRS will start back-in-office from September to November.  Staff is happy to start meeting in-person.  However, CalSTRS plans to contact members virtually and to continue with the virtual working environment.  The new building construction is moving forward as planned.  Challenges are: (1) changes due to COVID, (2) funding and investment.  CalSTRS will continue to focus and operation and service.

Next the Committee discussed Strategic Planning, 2019-22.   CalSTRS will look at the current environment and then plan for the next three years.   (CEO and staff, virtual meetings, risks, evaluation)  First, look at the current environment – S (strengths), W (weaknesses), O (opportunities), T (threats).

Harry Keeley expresses current concerns:  How do we get people back?  How has technology changed?  How will things change in 5 to 10 years?  Jennifer Baker opined that teaching might be changing.  The collaborative model has changed.  Relationships with other state governments and the public has changed.  Will CalSTRS staff continue to work remotely?  Harry Keeley wants CalSTRS to consider technology changes and changes to longevity, health care, and retirement.  CalSTRS will bring in more experts and get more people involved.

CalSTRS needs to think about preparing to get people back. How to do it?

To learn new ways to interact both internal and external.

To be aware of the generation gap.

To see the changing workforce

To be more flexible

Chris Ailman reported that other states are looking at Defined Benefit Plans and the fact that other employees don’t have that benefit.  States talk about closing Defined Benefit Plans.

CalSTRS goals: (1) Trusted Steward,  (2) Business, Customer Service innovator, (3) Sustainable (diversity, organized, good employer, adaptability, ESG principles)  CalSTRS is a model for others and an influence over time.

The Strategic Plan Goals: (1) Financial/governance, (2) Digital, (3) Member/Employer, (4) Organization Strength.

A draft of the plan will be developed with the first reading January 2022 and implementation by July 2022.

Teachers’ Retirement Board 10/6

Board goals are: earnings of 8.7% or more and a focus on China.

Byron Wien from Blackstone discussed the Investment Environment.  The market is fully priced and the economy is favorable.  The Corona Virus is under control.  In New York half of the employees are back working in the office. Predictions for 2021-22 are a GNP growth of 5% and inflation of 4%.  This business cycle will last for three years and maybe longer.  Predictions for the years after 2021-22 are:  Growth of 2-3% and inflation of 3-4%.

The world economy is favorable.  Economic outlooks for Europe and China are good.  Potential challenges are U.S.-China relations, rising interest rates, and inflation.

Life Lessons are: (1) Concentrate on the Big Idea in your career. (2) Network, (3) Trust new people, be friends. (4) Read, (5) Sleep, (6) Evolve – do different things. (7) Travel – see growing middle class in 3rd world. (8) Try to help with poverty, disease, etc. (9) Don’t take short cuts. (10) Be creative – take jobs you want. (11) Try something new. (12) Never retire.

The European Union will hold together.  Their social policies are better.  U.S. will have faster growth than Europe.  The Big question is the Future of Democracy – Democracy is being challenged because of a lack of social policies.

Areas of possible progress:

  1. Education costs decrease – increase of remote learning and tech help.
  2. Generation of electricity – increase in nuclear generation – fission and fusion
  3. Technology will improve human life. Need to get the rest of the world to decrease pollution.
  4. Inequality will still be an issue: growth does not help, poor people do not have the skills to be successful. They need education.
  5. Internet has improved the quality of life. Need to regulate social media.
  6. Technology is the way to the future.

Ian Bremmer discussed the future of institutional investing.  China has benefited from cheap labor and the rest of the world’s willingness to co-operate and trade.  This has changed.  Cheaper labor is not needed and the Chinese economy is not changing like before.  However 90% of U.S. business is steady and may be expanding in China.

There is no trust between the governments of the United States and China even though they have economic dependence.  They will not go to war, but there is less cooperation.  The United States and China will each turn more inwards. For example: No co-operation on the corona virus.  U.S. leaves Afghanistan and China turns inward also. China wants control of technology not innovation and not collaboration.  U.S. Allies are angry because now Afghanistan is a problem for them.  They can’t rely on U.S. commitment.

Ian Bremmer continued.  The big question is the U.S. investment policy in China.  China is a repressive regime, but that does not stop investments.  China is a middle income country.  Its population is still growing but by the end of the century China will begin losing population.  China wants control and human rights will be a problem.  China will become the largest economy in the world, but investments may be complicated – no free market.

Challenges for the United States are:

  1. Debt Ceiling. (The debt ceiling is not a worry to Ian Bremmer)
  2. Democracy. Democrats see democracy breaking because of Trump. Democracy is eroding because of corruption in business, no agreement about the role of society.
  3. What is happening in the United States including: Economic inequality, Racism, Social Media’s greater influence. Growing inequality (gated communities, private banks), private schools, service to the 1%.
  4. Lack of cooperation between countries – costs of climate change, poverty levels increasing.

There was one Public Comment: the Terminal Warehouses in New York have labor problems.  The caller asked CalSTRS to look into these problems.