On How CalSTRS' One Fund Approach Navigates Uncertainty
Scott Chan is shocked the market hasn’t reacted more to the crisis emulating from the US-Israel-Iran conflict. But the CalSTRS CIO is confident its one fund approach allows it to position dynamically and ensure diversification no matter what is presented.
So warned CalSTRS’ CIO Scott Chan speaking at the $392 billion pension fund’s March investment committee meeting, explaining to trustees that many unknowns lie below that will impact global trade flows, the equity bull market, and in the shape of currents like AI and America’s burgeoning housing crisis, young people’s ability to tap into the American dream.
The impact of the conflict in Iran is also gathering force below the surface of an apparently benign market.
Chan said he “was shocked” that the market hasn’t reacted more to the crisis – notwithstanding the sharp rise in oil prices. He attributed the absence of a market reaction to enduring uncertainty of how events will play out.
“The market is pricing efficiently what it knows,” he said, adding: “Right now with the uncertainty, I don’t care who you talk to, if they tell you they know what’s going to happen, you should probably walk the other way.”
In the first few weeks of the conflict, CalSTRS strategy has involved rebalancing from its slight overweight to growth assets, ensuring “ample” liquidity and staying mindful of emerging opportunities. For example, the energy crisis potentially opens the door to investment opportunities in markets that are net importers of oil through the Strait of Hormuz like India, Japan, China and South Korea, where sharp falls in the KOSPI represented a potential buying opportunity.
Away from geopolitics, Chan noted other currents building like trends in fiscal policy intervention and the formation of new trade alliances that are rewriting supply chains and redirecting how capital flows. As governments grapple to manage huge deficits, he flagged the risk and opportunity in interest rate volatility and the importance of diversification, discipline and staying dynamic.
Reflecting on market impacts closer to home, Stephen McCourt, managing principle and co-CEO, Meketa, argued that new Fed chair Keven Warsh won’t necessarily push for lower rates. “If Trump’s interest is to get the Fed to lower interest rates irrespective of data, Warsh is an unusual selection.” Coupled with inflationary concerns, he said it explains why markets have priced in fewer rate cuts for 2026.
Chan said the CalSTRS’ One Fund approach, its version of a total portfolio approach, will support the investor’s demand to dynamically allocate and diversify to maximise returns in the current complex environment. It allows the team to invest tactically to position the portfolio to benefit from volatility and has required putting in place cultural and organisational structures, notably a total fund team that maps a common language of risk, and how portfolio risk is shifting.
Recent strategies include increasing capital to asset backed private credit that is less cyclical, more stable and adds diversification with a similar return to other forms of private credit. Elsewhere, strategies include rebalancing the portfolio and pursuing opportunities when the markets are discounted.
CalSTRS generated an unofficial 13 per cent return over the last calendar year, well above the 7 per cent actuarial goal, with the value of the portfolio increasing by $42.5 billion, net of fees, contributions and benefits.
The global equity portfolio rose 22.8 per cent, led by strong non-U.S. equity market performance and interest rates fell, driving strong performance in fixed income markets.
The $58.8 billion private equity portfolio yielded a positive return over the past six months and outperformed the Custom State Street Index, which is used to evaluate performance against other institutional investors. Staff have increased co-investments, which now represent 24.6 per cent of the private equity allocation and continue to work toward the goal of 33 per cent co-investments.
Clearly, CalSTRS is doing well, and here CIO Scott Chan explains how their One fund approach dynamically allocates and diversifies to maximize returns in the current complex environment.
[...] It allows the team to invest tactically to position the portfolio to benefit from volatility and has required putting in place cultural and organisational structures, notably a total fund team that maps a common language of risk, and how portfolio risk is shifting.
Recent strategies include increasing capital to asset backed private credit that is less cyclical, more stable and adds diversification with a similar return to other forms of private credit. Elsewhere, strategies include rebalancing the portfolio and pursuing opportunities when the markets are discounted.
Whatever they are doing, it's working, CalSTRS delivered a gain of 13% over the last calendar year, outperforming its large Canadian peers (but underperforming Norway's giant sovereign wealth fund which gained 15.1% in 2025).
Again, it's all about asset allocation and CalSTRS is more exposed to liquid public markets (similar to Norway's Fund) but also has a sizable private equity/ private markets portfolio which seems to be performing relatively well.
Again, outperfoming its required rate of return (7%) by 600 basis points last calendar year is nothing to sneeze at, but keep in mind, their fiscal year ends at June 30 , so these are not official returns.
No doubt, their One Fund approach is proving very useful in this environment and they managed to diversify globally properly to take advantage of opportunities.
So, kudos to CalSTRS, Scott Chan, and his investment and risk teams, they're executing nicely in a difficult environment.
Moreover, for the 11th time, CalSTRS has been named one of the Best Places to Work in Money Management by Pensions & Investments magazine:
This 14th annual survey and recognition program is dedicated to identifying and honoring the top employers in the money management industry.
“As their employees attest, the companies named to this year’s Best Places to Work list demonstrate a commitment to building and maintaining a strong workplace culture,’’ Pensions & Investments Editor-in-Chief Julie Tatge said. “In doing so, they’re helping their employees, clients and businesses succeed.’’
The Best Places to Work award winners are chosen based on workplace policies, practices, philosophy, systems and demographics, as well as an employee survey.
“We’re honored to receive this award, which is a testament to our team’s commitment to protect the more than 1 million California public educators and beneficiaries who rely on us to help secure their future,” CalSTRS Chief Executive Officer Cassandra Lichnock said. “The award affirms that our greatest asset is our innovative, inclusive and passionate workforce.”
"This is an acknowledgement of the amazing teamwork and passion of our investments team and our colleagues across the organization,” CalSTRS Chief Investment Officer Scott Chan said. “I'm so grateful to the team for embracing our organization's mission and continuing to strive for innovation and collaboration.”
The 2025 Best Places to Work in Money Management award winners are posted online.
Good for them, this is a well-deserved acknowledgement.
Below, in this episode of How I Invest, a conversation with Scott Chan, Chief Investment Officer of CalSTRS, to explore how he oversees a staggering $350 billion in assets (March 2025).
Scott shares insights on CalSTRS’ collaborative investment model, their approach to private and public markets, and why they aim to be the "global partner of choice." He also discusses the importance of structural alpha, liquidity management, and identifying long-term supply-demand imbalances.
Great discussion, listen carefully to his insights and approach.
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