The roughly $400B California State Teachers’ Retirement System says the majority of the risk in its total portfolio lies in public and private equities.
According to materials from a recent Board of Trustees meeting, public equities risk and private equity risk combined make up about 79% of total portfolio risk. The CalSTRS risk team utilizes BlackRock’s Aladdin risk management system for the total plan portfolio, and the model estimates that 63% of the total risk in the investment portfolio comes from public equity, compared with an asset weight of approximately 41%.
Across all asset classes, the fund has significant market exposure to the U.S., with 75.4% of the portfolio invested domestically as of March 31, 2026. The second-largest exposure is Japan (2.3%), followed by the U.K. (1.8%), Canada (1.5%), China (1.1%), France and Taiwan (1.0% each), Germany (0.8%) and Switzerland and South Korea (0.7% each).
Among the total fund’s top 10 exposures, U.S. government fixed income made up the largest portion (10.4%), while the ‘Magnificent Seven’ technology stocks dominated the remainder of the list, including Nvidia Corp. (1.7%), Apple Inc. (1.5%), Alphabet Inc. (1.2%), Microsoft Corp. (1.1%), Amazon.com Inc. (0.8%), Meta Platforms Inc. (0.5%) and Tesla Inc. (0.4%).
CalSTRS’ largest fixed income exposure is U.S. government bonds and treasuries (56.5%), followed by Morgan Stanley and Bank of America Corp. (0.5% each); Citigroup Inc. and Goldman Sachs Group Inc. (0.4% each); Wells Fargo & Co., Oracle Corp., HSBC Group and the Government of Mexico (0.3% each); and AT&T Inc. (0.2%).
The materials also noted that active risk remains well within CalSTRS’ approved governance ranges. Public equity has an approved active risk budget of 10 to 60 basis points, and, as of March 31, 2026, the portfolio’s expected active risk stood at 25 bps. For fixed income, which operates under a 10 to 60 bps approved active risk budget, expected active risk was 11 bps as of the same date.
CalSTRS also highlighted that leverage within the real estate portfolio remained below approved thresholds. The Real Estate Investment Policy’s leverage limits include a 50% leverage cap for controlled structures, typically separate accounts and joint ventures where CalSTRS is the majority investor, while non-controlled structures, generally commingled funds where CalSTRS is a minority partner with typical limited-partner rights, are subject to a 65% cap.
As of Sept. 30, 2025, leverage within the real estate portfolio remained below those thresholds, with controlled investments carrying leverage of approximately 41% and non-controlled investments about 51%, resulting in total leverage of 44.5%. As well, the real estate portfolio was also predominantly based in the U.S., which accounted for roughly 83% of exposure when combining controlled and non-controlled investments. Industrial properties represented the largest property type exposure, followed by residential and office assets.
Within private equity, information technology represented the largest sector exposure at roughly 29% of the portfolio as of Sept. 30, 2025, followed by health care (15%), industrials (13%) and financials (11%). The portfolio was also primarily U.S.-focused, which accounted for approximately 67% of private equity exposure when combining fund and co-investment holdings, compared with about 24% in other developed markets and 7.5% in emerging markets.
CalSTRS also noted that U.S. equities continue to trade at elevated valuations relative to historical levels and remain more expensive than non-U.S. developed-market and emerging-market equities, while valuations for private equity, private real estate, investment-grade credit and high-yield debt have declined in recent months.
In addition, the meeting materials noted CalSTRS has a substantial liquidity cushion within the total fund. As of March 31, 2026, cash represented 1.8% of the portfolio, equivalent to approximately 4.2 months of benefit payments, while liquid assets accounted for 56.8% of the portfolio, or about 132 months of benefit payments. Illiquid assets, including private equity partnerships and other holdings that may become difficult to sell during periods of market stress, represented 41.4% of the portfolio.
The pension fund said maintaining liquidity to pay benefits, rebalance the portfolio, avoid forced selling and capitalize on investment opportunities remains a key oversight objective.
Leave a comment