CalSTRS Scales Back Commodities Plans

November 12, 2010 (PLANSPONSOR.com) – The California State Teachers' Retirement System (CalSTRS) has settled on a $150-million investment in the commodities markets, dramatically scaled back from its original plans for a $2.5-billion-commodities position.

A Wall Street Journal news report quoted a CalSTRS  spokesman as saying the fund’s investment committee wanted to pursue a more “conservative” investment that the fund can monitor for up to three years rather than making a large commodities allocation in its portfolio. CalSTRS investment chief Christopher Ailman said the pension fund is primarily interested in commodities “as an inflation hedge.”

CalSTRS is striking a cautious tone as other investors pile into commodities through exchange-traded funds and direct investment in the futures markets. The Dow Jones-UBS Commodity Index has risen almost 20% since February, when CalSTRS  first began considering its investment.

According to the Journal, CalSTRS ‘s tentative approach underscores the caution that some pension funds are taking toward commodities after being clobbered in 2008 when another big commodities rally lost steam. As of September, the California Public Employees’ Retirement System, (CalPERS), lost 13% on commodities since it began investing in the sector in 2007.

The Journal said CalSTRS considered a $2.5 billion commodity investment starting in the spring, but decided to cut it back this fall. CalPERS currently invests about $2.1 billion in commodities, which falls just short of its target of 1.5% of its $220 billion portfolio. The pension fund has the ability to increase its allocation to 3%, a spokesman said.

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