(Bloomberg) — The California State Teachers’ Retirement System is bracing for a year of market uncertainty that risks jeopardizing performance for the $350 billion pension fund.
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Calstrs faces “unprecedented and world-changing” risks, Chief Investment Officer Scott Chan said Wednesday. “What’s changed to the negative is fairly unique because its almost entirely related to policy.”
Chan, speaking at Calstrs’ March investment committee meeting, was referring to rapid-fire policy changes from the Trump administration, including a tariff-fueled trade war, that are triggering widespread uncertainty in markets and about the direction of the economy.
If there’s a recession and markets drop, the pension’s portfolio would follow, Chan said. Calstrs has a 30-year target to generate average returns of 7% annually to help fund its retirement obligations. If there’s a large drop, that could mean Calstrs would have to tap liquidity reserves it has built up over the past few years.
“Today’s storm is different,” Chan said. “We don’t know what the shock is.”
Chan’s top concerns included tariffs and how that might trigger a recession or even stagflation. He also cited geopolitical tensions, including the war between Russia and Ukraine and what role the US plays in trying to resolve the conflict, and the future of the North Atlantic Treaty Organization.
“The strategy that the US is withdrawing from these endeavors of freedom in the world puts into question our role in NATO, and may ultimately embolden more from China, Russia and Venezuela,” Chan said. “Those are geopolitical types of risks that would be extremely hard to navigate from a portfolio perspective.”
As a result, Calstrs is moving into more defensive areas such as fixed income and reserving more in cash to help navigate market volatility. The fund is also accelerating its move out of global equities and has slowed the pace of private-market transactions, despite earlier growth targets.
Chan said the fund is well-positioned to navigate the turmoil given the improvements it has made on risk and liquidity management tools. Its use of derivatives and futures, for example, saved the fund $2 billion from the market upheaval triggered by the pandemic.
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