Exclusive: CalSTRS looks to bolster ag portfolio with fresh commitments

The $224bn pension is considering capital injections into a fund and a separate account, as it seeks high single-digit returns from its nascent agriculture program, says director Paul Shantic.

The California State Teachers’ Retirement System is considering fresh commitments to two agriculture vehicles a year after making its first steps into the asset class, according to the program’s lead.

Paul Shantic, director of inflation-sensitive investments, told Agri Investor the $224 billion pension fund has “a couple of things cooking up internally” on the agriculture front, comprising one possible commitment to a fund manager and another to a separate account. Both of them, he stated, are focused on the US.

“We’re not trying to be terribly fancy in timber and agriculture in terms of the investment types,” he said. “We’re aware of a number of managers that are out there and we’re taking it slow, as we always do as we ramp up our expertise. And we look to consultants and others to help us out.”

The news comes nine months after CalSTRS made its inaugural timber commitment, a $250 million pledge to Twin Creeks Timber, a tie-up between Silver Creek Capital Management and a consortium of institutional investors. Last year, the pension also made its first investment in agriculture, worth $100 million.

Shantic declined to disclose the nature of that commitment but said the pension is not looking to invest directly anytime soon. “We’re always going to have a manager in front of us on anything, no matter what we do,” he said, though he did not want to exclude co-investments. “Some folks think that if you do a co-investment, you do direct. I don’t consider that direct​.”

He said infrastructure would likely continue to represent about two-thirds of CalSTRS’ inflation-sensitive portfolio, which was valued at $3.6 billion as of December 31, 2017, but noted that the institution would “probably increase” its ag and timber holdings “over time.”

“It’s going to diversify the portfolio, provide probably a hedge against inflation, and some cashflow as well. And in terms of returns, probably the higher end of single-digit-type returns, say 7 to 8 percent.”

He declined to comment on whether the pension was going to add staff members to help run the program, simply stating that this was one subject covered by “a continuing study” that is set to come out over the next few months.

For now, he added, the portfolio would likely remain concentrated on the domestic market. “We always find it easier for us to start in the US and look at the opportunities there. And then, as you gain more experience and make more contacts, that allows you to go and look overseas.”