Massive California Pension Fund Likes US Multinationals

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The California State Teachers Retirement System is investing in U.S. multinationals to help provide over half its returns for its 850,000 members and beneficiaries, Chief Investment Officer Christopher Ailman told CNBC Tuesday.

Over two-thirds of Calstrs' 55.1 percent allocation in "global equities" is in U.S. companies, he said.

"Right now we prefer the home-country bias. You’re getting international through the U.S. stocks as well. I’d rather invest in U.S. companies doing business in China than lots of little Chinese companies and worry about the market," he said.

Calstrs, the nation's second-largest pension fund with $150 billion in assets, is invested to create a "consistent return of closer to 8 percent" in order to meet long-term retiree obligations, Ailman said.

Like most investors, the pension fund has seen weakness in two areas: fixed income, which makes up 17.5 percent of its portfolio, and real estate, at 11.5 percent.

The fund has to keep fixed income investments at that 17.5 percent minimum, he said, but the fund is buying more short-term instruments.

"One thing that worries me now is just about everybody you talk to in the bond market is short duration. They’re worried about their benchmark," he said. "We actually are susceptible to seeing rates have little shocks down and then rally back up."

He said the real estate market is "slowly coming back, but that’s the one asset class that has not recovered."

Unlike other investors, the fund also depends on member contributions. Ailman would like to see an increase in those contributions but that decision can only be made after discussions between the teachers' union and the state legislature.

"We are one of the few boards in the country that doesn’t have the ability to set our own contribution rates," he said. "So we have to go to the legislature, and that is tough in California right now."