As other funds bail on commodities, CalSTRS pursues test drive

[September 04, 2015] By Rory Carroll

SAN FRANCISCO (Reuters) - CalSTRS, the $191 billion California teachers pension fund, is pressing ahead with plans to test the waters of global commodity markets, an asset class that has fallen out of favor for many investors because of slumping prices.

Almost a year after its chosen commodity investment manager shut down, CalSTRS, one of the country's largest public pension funds, is now looking at another firm to manage some of a $150 million allocation it earmarked in 2013, a spokesman said.

"CalSTRS is in the process of reinitiating its commodities strategy," Ricardo Duran, spokesman for CalSTRS, or the California State Teachers' Retirement System, told Reuters on Thursday.

"Once CalSTRS gets the portfolio on its feet we will monitor its performance for no less than three years," he said, after which the committee will decide whether to abandon the strategy, test drive it more, or include it into its permanent portfolio.

The fund views commodities as potentially important diversifier beyond the usual stock-bond portfolio and a hedge against inflation, Duran said. Initially it will invest in futures and other derivatives, he said.

The fund's board is also in the midst of deciding whether to shift up to $20 billion out of stocks and into Treasury bills and other safer investments, according to reports, with a decision expected by the end of the year. Duran said the pursuit of a commodities portfolio is correlated to that discussion.

CalSTRS' investment, a tiny percentage of total assets, comes as many other funds exit the asset class. Total investments in commodities have fallen to $250 billion this year, from more than $400 billion a few years ago.

Collapsing oil and grain prices caused havoc for commodity funds last year, with the actively managed funds in the Lipper Global Commodity sector losing more than 14 percent on average.

This year has seen more of the same including last week, when oil tumbled to its weakest in 6-1/2 years and industrial metal prices fell to multi-year lows.

California peer CalPERS made the jump into commodities in June 2008 with a $1.4 billion investment at a time when even conservative managers were rushing into the sector in hopes of a "super-cycle" of inflation-protected returns. It had $4 billion invested as of June 30, according to its financial report.

CalSTRS was a relative latecomer to the commodities pool, first adopting a policy for investing in commodities in 2010 after the global financial crisis. Its investment committee allocated $150 million in 2013.

But the money was never spent because the selected portfolio manager, Hermes Fund Managers, abruptly closed its commodities business in October 2014 before the experiment could commence.

(Reporting by Rory Carroll; Editing by Jonathan Leff and Steve Orlofsky)

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