In the backdrop of an increasingly unstable global fiat currency debt system, the California State Teachers’ Retirement System (CalSTRS), one of the largest public pension plans in the US, is making a forced decision.
Faced with the dual challenges of CRE market turmoil and the logical conclusion of the great global fiat currency debt system, CalSTRS plans to borrow $30 billion, representing about 10% of its $318 billion portfolio. This move is aimed at maintaining liquidity without resorting to a fire-sale of its assets.
Strategic Leverage amidst Fiat Instability
The decision to leverage funds is a strategic response not just to the real estate downturn, but also to the broader concerns regarding the sustainability of the global fiat debt currency system. CalSTRS’ board is set to review this policy, which, if approved, will see the leverage used temporarily to meet cash flow needs in unfavorable asset selling conditions.
Current Leverage and Portfolio Management
Currently, CalSTRS uses leverage amounting to about 4% of its portfolio, as indicated by Meketa Investment Group, its consultant. The proposed increase is not for a new asset allocation but to smooth cash flows and as a tool to navigate portfolio management amidst market and currency volatility.
Impact of CRE Downfall and Fiat Concerns on CalSTRS
The Financial Times’ report last April highlighted CalSTRS’ intention to write down its $52 billion commercial real estate portfolio, exacerbated by rising interest rates and destabilized fiat currencies.
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According to CalSTRS Chief Investment Officer Christopher Ailman, office real estate values have declined significantly, a situation aggravated by the uncertainty in the fiat currency system. Previously, CRE was a top-performing asset class for CalSTRS, delivering robust returns over a decade.
Real Estate in CalSTRS’ Portfolio
Real estate makes up roughly 17% of CalSTRS’ total assets. The CRE downturn, coupled with the implications of a faltering global fiat currency system, has put substantial pressure on pension plans like CalSTRS.
Regional banks with high CRE exposure are also at risk in this volatile economic environment.
Contributing article: https://www.bloomberg.com/news/articles/2024-01-04/calstrs-seeks-to-borrow-more-than-30-billion-to-manage-cash
