CalSTRS, the $304 billion fund for Californian teachers, has successfully implemented a collaborative model in its investment approach over the past five years. This approach involves bringing more assets in-house and utilizing various investment vehicles such as co-investment, joint ventures, separately managed accounts (SMAs), direct ownership, and revenue share. The model has resulted in significant cost savings, with more than $1.6 billion saved since 2017. The collaborative model has focused not only on internal management but also on strategic partnerships with external providers to achieve benefits in returns and risk management.
The collaborative model has led to an average annual savings of $273.5 million, prompting CalSTRS to set an internal target of an additional estimated $200 to $300 million in annual savings over the next five years. The model emphasizes flexibility, utilizing a toolkit of structures including SMAs, co-investment, joint ventures, and various ownership stakes. CalSTRS aims to be the partner of choice for its collaborators, actively engaging with fund manager partners and prioritizing nimbleness, responsibility, and knowledge in its collaborative efforts.
In addition to cost savings, CalSTRS notes that the collaborative model has contributed to net value added, with alpha-above-benchmark figures of 97 basis points over three years, 67 basis points over five years, and 29 basis points over 10 years. The fund sees the collaborative model as instrumental in enhancing its understanding of risks, enabling it to make more informed decisions on risk retention and market engagement. As CalSTRS moves into the next phase of the collaborative model, it plans to expand its involvement in joint ventures, revenue sharing, and ownership arrangements, with a strategic focus on driving growth and efficiency.
https://www.top1000funds.com/2023/12/behind-calstrs-cost-savings-better-returns-and-control-of-risks/