Episode summary
Former CIO of CalSTRS: The Decision That Took a Pension From $100B to $350B
How I Invest With David Weisburd
· · 22 min · Hosts: David Weisburd · Guests: Christopher J. Ailman
Summary
Christopher J. Ailman argues that CalSTRS’ biggest performance driver was governance, not brilliance: the board delegated broad authority to staff, giving the investment team room to operate like a professional money manager inside a public pension. He says that structure, borrowed from the Canadian model, helped CalSTRS grow from about $100 billion to $350 billion and move from the number three fund to the second largest fund in the USA.
He also makes the case that asset allocation explains close to 90% of long-term returns. At CalSTRS, that meant steadily shifting toward private equity, real estate, infrastructure, and private debt while staying cost-conscious and avoiding fashionable products that added fees without improving net returns. He emphasizes that scale should be used to negotiate lower costs, run more assets in-house, and capture market beta efficiently.
Ailman repeatedly returns to culture and decentralization as hidden sources of alpha. He preferred a collegial, specialist-driven team over a centralized model, arguing that good investors come from many backgrounds and that great due diligence means checking who really makes decisions, how teams behave under stress, and whether a manager’s culture can survive change.
Key takeaways
- Ailman says governance and clear decision rights were the foundation of CalSTRS’ long-term outperformance.
- He argues asset allocation explains close to 90% of portfolio returns, making strategy more important than stock-picking flair.
- He says CalSTRS lowered net costs by running fixed income and passive equity in-house and avoiding expensive “shiny objects.”
- Ailman believes decentralized, specialist teams outperform centralized decision-making because they surface better ideas in a crisis.
- He says the best investors come in many forms, and hiring should focus on self-reflection, humility, and complementary thinking styles.
Notable quotes
“Governance in public funds really does drive return and it drives the CIO and the team”
“In any portfolio asset allocation does really explain close to 90% of the return”
“I constantly told the staff that, you know, one year is like a mile in a marathon”
“I wanted a collegial culture. I was in Sacramento. I wasn't in a financial city center”
“a decentralized model, I think, brings the best of of everybody's mind together and you get the best of the team”
How the episode opens
Chris, I've been very excited to chat. Welcome to the How Invest podcast. — Thank you. Honored to be here. Enjoy it. — You were CIO at Calsters for 23 years. Now that you're a little bit removed from that position, what were the key decisions that you made over those 23 years that really shaped the fund and your pool of capital?
Governance in public funds really does drive return and it drives the CIO and the team. One of the early decisions that board made in in literally the 1990s before I got there was to delegate broad authority to run the investment portfolio to the staff at the time. It was very cutting edge in the states but they were modeling it after sure enough the Canadian model uh even though we didn't call it back then.
That's what attracted me to the role. Um the other thing was I knew sort of the core of the staff. It was a fairly small team.
It was a back then it was a hundred billion dollar fund only 35 people but I knew that I wanted to take us from kind of a sleepy small shop to a world-class institution and ran running a good chunk of the assets in house and uh that's what we achieved over that time period we very proud to say that you know we we moved from the number three to the second largest fund in the USA and I think built a consistent track to being above median to top quartortile uh among public funds.
Today it's 350 billion. How are were you able to achieve above median returns? Is it just siloing and giving the governance to individual teams or was there more to it? — In any portfolio asset allocation does really explain close to 90% of the return.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- institutional investing
- pension governance
- asset allocation
- investment costs
- organizational culture
Watch the episode
Watch “Former CIO of CalSTRS: The Decision That Took a Pension From $100B to $350B” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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