CalSTRS To Issue RFP For Commodities Managers
February 28, 2011 Institutional Investor's Money Management Letter

--Joe D’Allegro $140 billion California State Teachers Retirement System (CalSTRS) will issue a request for proposals for commodities managers within the next five months. The commodities allocation will total $150 million, and was approved late last year, according to Carrie Lo, an investment officer in the fund’s Innovation and Risk unit. The System plans to use the allocation as a sort of test-drive of the asset class as a hedge against inflation and to develop greater internal knowledge regarding the class.

A spokesperson for the fund confirmed that the CalSTRS’ Investment Committee approved a Commodity Portfolio Policy in November. The spokesperson cited the fund’s chief investment officer, Christopher Ailman, as saying the commodities strategy would be an “an 18-month test drive.”

This means it will be incubated under the CalSTRS Innovations and Risk portfolio and is not part of the permanent portfolio. Ultimately, the incubation period could be three years, but the spokesperson said a full review--to continue, expand, adjust, or abandon the program--is expected at 18 months.

Innovation and Risk is a segment of the portfolio designed to try out new strategies; commodities is a new strategy for CalSTRS. The incubation vehicle is a way for CalSTRS to determine if the strategy is compatible with its asset allocation goals.

The spokesperson said the plan would divide the $150 million allocation among three commodity managers, and would benchmark the Dow Jones-UBS Commodity Index for this strategy. Investments will be gradually phased in to take advantage of opportunities in the markets. Initially, CalSTRS will rely solely on external managers. These managers will employ an active investing and dynamic risk management style including enhanced indexing. However, CalSTRS will not invest in trading-oriented or commodity producers.

A full review of the commodity program will be placed in the Investment Committee’s fiscal year 2011-12 schedule.