Calstrs, which targets returns of 7.5 percent on average over time, earned 1.4 percent in the 12 months through June.
The Risk Mitigating Strategies hold U.S. Treasuries as well as trend-following and global macro hedge funds. Within that category, 50 percent to 55 percent will be allocated to hedge funds, Ailman said. That would mean Calstrs’ allocation to hedge funds will increase to as much as 5 percent of total assets, up from about 0.5 percent currently.
Based on the Calstrs assets as of July of $193.4 billion, that would amount to an allocation of as much as $8.7 billion to hedge funds. The target will be reached “probably within three years,” Ailman said.
Asset Allocation
The fund had 56 percent of its assets in global stocks, 16 percent in fixed-income, 13 percent in real estate and 8 percent in private equity as of July 31, according to its website. The balance was in cash and other financial instruments, including the Risk Mitigating Strategies, which held 0.9 percent.
Calstrs considers hedge funds as a strategy rather than an asset class, Ailman said.
“When you look at Yale, Harvard or some of the sovereign wealth funds, they consider hedge funds an asset class and they are looking for extreme out-performance,” he said. “We say a hedge fund is just a business model, just like a partnership structure is just a business model.”
This article was provided by Bloomberg News.