Episode summary
CalSTRS CIO: Where Do You Invest $390 Billion Today?
How I Invest With David Weisburd
· · 29 min · Hosts: David Weisburd · Guests: Scott Chan
Summary
CalSTRS is positioning a $390 billion portfolio for a world shaped by AI, deglobalization, defense spending, and the energy transition. Scott Chan said these forces are creating a long fixed-asset spending boom, and that the old 60/40 playbook is losing effectiveness as stocks and bonds become more correlated. He argued that CalSTRS needs more dynamic allocation, greater diversification, and especially liquidity so it can provide capital during drawdowns and buy assets at steep discounts.
Chan said the fund’s edge is less about taking more market risk and more about structuring investments to create “structural alpha.” That includes sourcing and selecting better deals, lowering fees, and using partnerships, co-investments, and platform relationships to capture value without building a fully internal private-market complex. He said the fund returned 9.4% per year over the last five fiscal years with 76 basis points of alpha, and that co-investments have grown from about 2.5% of private equity to north of 25%, potentially 35%.
He also described governance as a major advantage: CalSTRS has delegated investment authority deeply, enabling speed, ownership, and better recruiting. Looking ahead, Chan said infrastructure is likely to be the biggest growth area, while AI makes venture and growth investing more strategic because it is harder than ever to know which companies will win.
Key takeaways
- Scott Chan says CalSTRS is leaning into AI, deglobalization, and the energy transition as drivers of a multi-decade fixed-asset spending boom.
- Chan argues stocks and bonds are becoming more correlated, so CalSTRS needs more diversification, more dynamic allocation, and stronger liquidity management.
- He says CalSTRS has created “structural alpha” by using partnerships and co-investments to cut fees and improve sourcing without adding market risk.
- Chan said co-investments have expanded from about 2.5% of private equity to north of 25%, with a possible path toward 35%.
- He expects infrastructure to be the biggest growth area for CalSTRS because it is less correlated and benefits from energy, power, AI, and defense spending.
- Chan said CalSTRS returned 9.4% annually over the last five fiscal years, with 76 basis points of alpha above benchmark.
Notable quotes
“AI hugely transformative, right? can transform virtually every company, sector, industry, even countries”
“Roughly half of our portfolios in private markets. So it'll be crucial for us to be able to manage our liquidity”
“we have to be thinking about how can we truly then diversify our portfolio if our fixed income portfolio becomes more correlated to our growth portfolio”
“we generated about 9.4% returns per year with about 76 basis points of of alpha or 76 basis points above our benchmark returns”
How the episode opens
85% of what we do in the public markets we do internally. If I looked at the private markets, uh we didn't think that we had the governance structure to build our own internal black stone KKR Apollo and so we would rather become the partner of choice and try to achieve similar benefits of lowering the costs, controlling our risks and essentially developing more value or alpha with these partnerships. If we think about all these transformations, just take AI as one of them.
Is a company going to win or is it going to lose based on this transformation in technology? That kind of disruption within a a 10year time horizon today, I can't imagine a person that could say with accuracy who's going to win and who's going to lose. So, we have this very highly delegated model of authority.
You mentioned earlier retail, sovereign wealth funds, all these new pools of capital coming on board. Do you worry that some of these assets might be overbought and some assets might not even be worth investing in? Scott, you're the CIO of Calsters, which has 390 billion assets under management as of last calendar year.
And last time we chatted, you said that you were positioned in a very interesting place as an organization to take advantage of AI revolution. What did you mean by that?
AI hugely transformative, right? can transform virtually every company, sector, industry, even countries with the with that um technology. But if that weren't enough in and of itself, uh we're living in a multipolar world, meaning that countries more and more are doing what benefits them the most, right? And so that is changing and rewriting the supply chain, deglobalization. Many countries are spending more on defense. We're also on the path net zero.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- calstrs asset allocation
- 60/40 breakdown
- liquidity and dynamic allocation
- structural alpha
- private markets co-investing
Companies and tickers mentioned
- CalSTRS
- AlphaSense
Watch the episode
Watch “CalSTRS CIO: Where Do You Invest $390 Billion Today?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
