CalSTRS contemplating more distressed debt

CalSTRS, the California State Teachers' pension fund, looks set to increase its allocation to distressed debt in view of declining public markets.

The California State Teachers' Retirement System (CalSTRS), the third largest pension fund in the US, may commit in the region of $300m to distressed debt investments before March this year, according to Private Equity Week.

According to the report, CalSTRS, which currently holds $172m in debt-related securities, looked into distressed debt last August when state controller and CalSTRS investment committee member Kathleen Connell warned that a California state budget shortfall would not allow the state's general fund to cover its unfunded liabilities. Although the $100.8bn pension fund is currently fully funded, falling returns in its public and private equity portfolio have made distressed debt an attractive option.

The report quotes Connell saying: 'It's counter-cyclical to go into distressed debt. I would not have recommended it two years ago, but it is a great asset class to be in now. Given the state of the public equity markets, it is an asset class we need to consider.'