The latest in a series of interviews with senior international pension fund trustees.
RI has partnered with the Committee on Workers Capital (CWC) to publish a series of CWC Trustee Profile interviews with union-nominated pension fund trustees that touch on the role of individual board members in driving innovation around responsible investment at their funds. This instalment is with Sharon Hendricks, Vice-Chair of the CalSTRS Board of Trustees. The first in the series was with José Meijer of ABP (link).
The California State Teachers’ Retirement System provides retirement, disability and survivor benefits for California public school educators. The fund has approximately 914,000 members and $202 billion in assets under management as of February 2017. CalSTRS is the largest educator-only pension fund in the world and the second largest pension fund in the United States.
The CalSTRS Board consists of twelve members representing current educators, retired educators and employer representatives:
Three member-elected positions representing current educators;
One retired CalSTRS member appointed by the Governor of California and confirmed by the Senate;
Three appointed public representatives appointed by the Governor and confirmed by the Senate;
One school board representative appointed by the Governor and confirmed by the Senate;
Four ex-officio members: Director of Finance, State Controller, State Treasurer, State Superintendent of Public Instruction.
The decisions taken by the board are implemented by the CalSTRS team, which is composed of over 1,000 staff. As of June 2016, CalSTRS managed 46 percent of its assets in-house while the remainder was delegated to external asset managers. The fund’s asset mix is composed of investments in fixed income, global equities, real estate, private equity, inflation sensitive investments (e.g. infrastructure), absolute return (e.g. hedge funds) and cash.
The Mission of CalSTRS is “securing the financial future and sustaining the trust of California’s educators.”
Why were you interested in becoming a pension trustee?
Quite frankly, I was never interested! I was mentored into the role. I think my experience speaks to the fact that we need to develop a deeper bench of trustee leaders. I was a young union leader in Los Angeles and a board member asked if I’d be interested in attending board meetings as a stakeholder. I started going and saw that the meetings attracted global leaders in finance and politics. I saw how critical the decisions board members made were and how important it was to have good leaders.
What motivated me to run in the election was seeing the strategic nature of workers’ capital: This was teachers’ money, CalSTRS is the largest teachers’ pension fund in the world, and it seemed like an important role. I felt I would do a good job listening to faculty concerns and I care about finance. I was in the right place at the right time with the right people, and I felt really lucky to be elected by California’s community college educators into this important leadership role.
How do the board decisions on ESG/responsible investment reflect the values of the beneficiaries it represents?
The challenge of a trustee is that you’re a fiduciary of the system. You may care about the values of the members of the system, but our members don’t share one set of values. You can talk to one teacher who says “I’m glad we got out of tobacco” and another who says “you lost $2 billion. Why did you do that?” At the end of the day, you (as a trustee) are the steward of a fund and your decisions must make sure that it grows financially.
We have an ESG policy that’s part of our investment policy. In the last few years, the board has taken language around ESG and made sure it’s inclusive of all of our asset classes. We’ve also asked our staff to engage with our external managers to ensure that they share the same values as CalSTRS on ESG.
We’ve started an investment belief conversation at the board level. It’s been a challenge to get everyone on board because different trustees have different beliefs around how ESG issues connect to our fiduciary duty. There’s been conflict about whether ESG should be part of our investment beliefs.
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