Hopeful in a Snowballing Process
Many women depend on Geraldine Jimenez – many, many women. She’s the director of investment strategy and risk at CalSTRS (the California State Teachers’ Retirement System) and greater than 70% of the $280 billion fund’s one million members are women. Many of these women spent decades in a profession that offers enormous psychic rewards but modest financial ones. So, Jimenez and her colleagues play a critical role in providing them with a secure retirement.
Jimenez job is to help chart a course for one of the battleships of institutional investing. CalSTRS’s vast size – it’s the largest educator-only pension fund in the world – means it can rarely take the approach of smaller institutions and opportunistically buy a little of this and a little of that. CalSTRS, and the few other pension funds with 12-figure portfolios, need to be decidedly systematic and widely diversified. Otherwise, what’s a bite sized investment for them with little impact on the portfolio would make them overly complex with unrewarded investments. Rather, CalSTRS seeks attractive opportunities with sufficient scale and good risk adjusted returns. It must thoroughly scrutinize its flotilla of holdings to ferret out hidden correlations, conflicts, and risks. That’s why CalSTRS’s CIO created Jimenez’s position in 2019. For the previous four years, she led CalSTRS Investment Engagement Unit and played various leadership roles including chairing its Risk Allocation Committee to strategize on positioning the CalSTRS portfolio, both strategically and tactically.
To guide the ship, she says, “We have a strong focus on strategic asset allocation.” Her job is to work closely with the CIO “to bring information to our board to make long-term strategic decisions.” These days, she says, public equity constitutes about 49% of AUM, while private equity is about 10%, and real estate is about 14%. They are also inflation sensitive at 3% and fixed income at 12%, she says, “and we have a risk mitigating strategy, which is around 9%.” That strategy, which involves investing in things like long treasuries and other diversifying strategies “to protect against a huge market sell off.” There are memories of the 2008-09 financial crisis, when CalSTRS lost $74 billion – about 40% of AUM. To top off the asset allocation, CalSTRS invests in sustainable strategies and short-term investments, and researches new opportunities in its innovative portfolio managed by Jimenez.
One big strategic effort these days is the shift toward more in-house management. About half the public assets are managed in-house, and in the case of private markets, “We are doing more and more direct investments, and more coinvesting or participating in operating companies.” Jimenez says. She adds, “We’re going to continue bringing in strategies that make sense to manage in-house.” In 2019, CalSTRS managed about 48% of AUM internally and 12% in Hybrid strategies (co-investments and similar strategies). The CalSTRS Annual Investment Cost Report indicated spending $39 million on internal management, $327 million in hybrid strategies versus $1.4 billion on public and private external managers. So in-house management, including co-investments, has been seen as a way of reducing costs while gaining attractive opportunities with trusted partners. With an investment staff of about 196, CalSTRS is gearing up to delve into a variety of strategies.
CalSTRS needs all the investment firepower it can muster. In 2017, it reduced its actuarial assumptions about returns from 7.5% to 7.0%, and its funded ratio is in the mid-60s. “There’s a legislative path that’s been in place for a few years, under which the plan will be fully funded by 2046, and this plan has a growth component in the portfolio to help get there,” she says. Besides saving money, she adds, in-house management “also give us more control – we think it’s the way to manage risk.” If asset allocation is tricky, the risk management part of her job may be even more so. “I chair our Risk Allocation Committee, and we manage the risk team to ensure we’re bringing value-added reporting and oversight so everyone can make the appropriate decision.”
In the case of publicly traded assets, that means “we are implementing risk budgeting. We see that as a way to offer more flexibility but also to manage the risk and make sure we’re looking at incremental returns for the risk taken,” she says, adding, “We’ve already implemented it in public equity, and we’ll continue to roll it out in fixed income and the sustainable strategies portfolio.”
Jimenez laments that risk “is very complex. If you only look at it from an academic sense, you miss a lot.” The investments themselves present idiosyncratic risks, but she adds, “the other risk is counterparty risk, buying or lending money to those we transact with, and also GPs: It’s multifaceted.” And CalSTRS has hundreds of counterparties. Another risk is liquidity risk. As a mature pension plan, CalSTRS is paying out about $5 billion a year more than its taking in. “We need to make sure we have cash on hand to pay benefits and invest opportunistically. We spend a lot of time on this.”
In addition to strategy and risk, Jimenez has a third mandate: “I manage an innovative portfolio to try out new ideas, to put your toe in the water in different asset classes. For example, we are developing a diversifying private credit portfolio and if it proves to add value, may be scaled up during the next asset allocation study.” She notes that the tools and instruments have evolved over her 30 years in the pension world. During those three decades, Jimenez says she’s also seen major changes in the status of women. “It has been a big hill to climb” so far, she says, but going forward, “if you look at the numbers in the pipeline, it’s going to be very different.” She is hopeful in a snowballing process: “It takes multiple women at various organizations to make it easier for the next generation, up and coming women.”
She laments that one thing slowing the process is a lack of interest by women in asset management. Jimenez says she doesn’t understand it. “Young women and people of color may not see investment management as a career path since they don’t know anyone with this career. Also, there are some things in the industry that the younger person might think are not attractive as portrayed in movies. It’s not seen as an obvious career path.” She notes that she was able to interest her daughter, now in her mid-20s, in investment management who works for a large asset management firm. But Jimenez doesn’t get why more college students are not excited about it: “From my perspective, it’s so meaningful to help teachers and others save and grow their hard earned money,” she says, so she wishes that “we could get the word out and we could get every young woman and young people of color interested. But it is a challenge.”
For women who enter asset management, she adds, “I think it’s important to network and find sponsors: I’ve been so fortunate to have women and men sponsor my career. They have given me advice. It’s important to listen and take it. Every one of us will fall down and make mistakes, but you need to keep moving; don’t take no; stick to things you’re passionate about.”
Jimenez feels strongly on these issues. “I think we all need to give back to the community, whatever it is. For me, it’s women and a diverse pipeline of ideas and talent in investing. I’m on a board for at-risk kids and volunteer to mentor young investment professionals – women and men – to help them find that passion.”
Jimenez’s own entry into the investment management world came naturally. She grew up in Sacramento, where CalPERS and CalSTRS each have sizable office campuses, and went to college there. As a student, “I loved math, but I decided I wanted more of an applied math focus, so I thought: What about business and finance?” She adds, “Being in Sacramento, I learned about CalPERS, and I got an entry-level job, and it’s been incredibly rewarding.” She started as an analyst and rose through a succession of portfolio manager and oversight positions.
But after 25 years, she was lured across the Sacramento River to CalSTRS. Many in the pension world see CalPERS as the somewhat tumultuous big brother, while CalSTRS is the sensible smaller sibling. “I don’t agree with that statement,” Jimenez says, but she concedes, “They are very, very different in culture. CalPERS grew a lot earlier, so there’s a lot of newer people with different perspectives, and they have had a lot of turnover.” By contrast, “CalSTRS has had a steady culture: The senior team I’m a part of is collegial and collaborative.” She adds, “It’s a joy to work here. I think you can’t underestimate what a good culture does.”
Jimenez and her husband – he’s an engineer – have a daughter as well as a son in their twenties. She’s an avid cyclist and golfer. But she remains enthusiastic about her work. “Every day I get to learn new things. I enjoy learning.” No doubt the teachers she is helping to support love to hear that kind of attitude.