CalSTRS Report – May 7, 2020

Summary

  1. The CalSTRS fund is $243 Billion
  2. While market was up for March the Bear Market is not over. Recessions can last for years not months
  3. 2021 Investment Committee work plan will emphasize the study of Asia with an emphasis on China
  4. The next CalSTRS meetings will be July 6,7,8.

Investment Committee

The committee heard an update on the Corona Virus from Esther Krobab, FasterCures Executive Director.  15% of the population has had the virus and are immune.  The government is still working on testing. Betty Yee asked if the virus was mutating.  The Virus is not mutating rapidly and this is not a problem.  Chris Ailman, CIO asked about a vaccine by fall.  A vaccine is probably not possible so soon.  The hope is to get better treatment and maybe prevent people from getting the virus.  It is possible to get antibodies from infected people, but is hard to maximize this.  How does one balance individual privacy and get necessary information.

Chris Ailman  gave the investment report.  As of February 29 the CalSTRS fund is $243 Billion. The portfolio is pretty close to where it started the fiscal year, so over the fiscal year investments returns have been pretty flat.  We are in a Bear Market – recession.  The challenge is opening up when it is likely that there will be an increase in the virus in the fall.  Many people will want to continue to stay home.  Chris Ailman sees the challenge is a long recession.  Companies will be slow to come back especially in retail.  Another challenge is the elections in the fall – will the U.S. have recovered?  Another challenge is the influence on the elections in the fall – will the U.S. have recovered by then?  CalSTRS is being defensive, but if the market rallies CalSTRS may lose out on the rally.

Meketa reported the stock market in March was volatile.  The Government and the Federal Reserve have supported business.  While market was up for March the Bear Market is not over.  Recessions can last for years not months.  Another pension challenge is low interest rates.

Next Chris Ailman reported on the work plan.  The world is transitioning to a low carbon economy.  2021 will emphasize the study of Asia with an emphasis on China – both friend and foe. Government and regulations are a challenge.  The work plan was approved.

Debra Smith, Chief Operating and Financial Services Officer is retiring.  The committee wished her well.  The next CalSTRS meetings will be in July.

Teachers Retirement Board

Board member Harry Keiley is elected Retirement Board Chair and Sharon Hendricks is elected as the Vice-Chair.

Jack Ehnes gave the Chief Executive officer Report.  There are challenges with telecommunication.  Construction at the Headquarters building continues and is going well.  Supply materials are arriving as expected.  Construction workers are tested for the virus; nevertheless; construction is going as expected.  CalSTRS financed the construction with a green environmental bond.

Julie Underwood presented the Enterprise Risk Management Report.  The top issues are: 1. Technology OK, 2 Investments, CalSTRS has sufficient liquidity to pay benefits well into the future, benefits are secure and continue to be paid timely.  3. Delay of international mail.  4. CalSTRS continues to receive contributions from employers.  5. How the pandemic will affect the market (too early to tell).

Plan for 2020-21 is to not ask for new personnel and to reduce the budget.  The revised budget will be presented at the July meeting.  CalSTRS is monitoring the number of absentees.  But work continues on business projects.

The PensionSolution computer project is continuing.  There is a problem with training due to the Coronavirus.  Staff are converting training to computer-based training as appropriate.  There may be a one to two month delay.

The CalSTRS business is stable and the focus is on continuing as much as normal.  Some staff are concerned with the open design of the new building.  Everyone needs at least six feet for social distancing.  Some staff may need to work from home.  CalSTRS is doing research on more physical separation, but office space is definitely smaller.

Board member Prezant asked what if school districts can’t make their contributions to CalSTRS.  This has not been an issue as a result of Coronavirus, to date, and CalSTRS would work with the State Controller’s office.  Harry Keiley asked for a risks report and how CalSTRS will mitigate the risks.  CalSTRS staff replied that CalSTRS may need a contribution increase from the State.

The Department of Finance reports that State tax revenues will be down.  CalSTRS may need a State increase from 5.811% of payroll to 6.311%.

The Board Chair and Vic Chair could enter into non-investment contracts that need aopproval between Board meetings for emergency provisions.  Board members would be notified of such action.  Reimbursement to Board members as well as reimbursement to hire a replacement will be allowed up to 100%.

Fiduciary Counsel for the Board: The Board will now have access to four firms who will engage with the Board as needed.

The next CalSTRS meeting is expected to take place July 6-8, 2020.  The open session of the Regular Board Meeting was adjourned.