Scott Chan
speaker
125 appearances
1 recordings
1 series
first heard Mar 2025
last heard Mar 2025
Scott Chan’s voice in public audio — every appearance, attributed to the second.
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Appearances
I don't think there is an ideal way that we collaborate. with our partners. And that's why I think the key word, and if I were to just summarize in one word, it's collaboration, right? We want to sit down with our partners and do what makes sense. And that differs, right?
It differs by the type of transaction, the type of market, as well as the capabilities of our partners, because our partners are all organized differently as well in terms of their governance structure. for us to do well, it's really by being flexible.
And I can give you an example, but again, we can traverse from just an LP interest all the way to ownership and Fairfield Residential, for example, is an example of a cloud remodel transaction where CalSTRS has majority ownership. And so if you think about the current real estate cycle, I know that it's been depressed for a few years,
But long term, if you think about residential housing in the U.S., which is essentially what Fairfield Residential focuses on, we think that that's going to be undersupplied for the foreseeable future.
So if we looked out five or ten years, even after the great boom and bust in 08-09, we just never saw the supply come back the way it should have to meet the type of demand demographics that we have here in the U.S. For us, it's very strategic. to have ownership in Fairfield, which is, you know, for us then can act as an extension of staff, right?
We have 250 investment professionals, for example, here at CalSTRS, but Fairfield does call it 1400, right? They're in every sub market, they're in 30 plus sub markets in the United States. They're in almost every one that matters, right? They're a top 10 producer of residential real estate. And so that really puts us on the ground floor to capitalize on opportunities and sourcing
And as an example, we were then early with them on developing affordable housing. And as prices continue to go up, the definition of affordable housing in the United States keeps keeps growing because we have majority ownership. We also anchored a number of those strategies and we benefited from those investments in affordable housing.
But we also benefit from the growth of Fairfield as well, because we own land. the general partnership we own, the asset manager, so to speak. New areas are complex. They may not have a five-year track record behind that, but if we have the expertise and we can build the expertise with our staff to mirror that of our partners, we can also invest in that complexity for the benefit of CalSTRS.
one of the number one things that we look for, or sort of one, two, and three, is we look for managers that have a competitive advantage. Number two, we're looking for a desire to create more value together, right? Things like what we do with collaborative model transactions.
The third is we want some, in the major categories, shared principles around a whole host of how we think about investing for the long term. How are you building your teams? How are you getting diverse ideas? So those are some of the characteristics that we are really looking for. But if I were to, in each one of those, probably we could go into a 30-minute conversation.
But if I were just to stick on the competitive advantage piece of it, in Fairfield's case, they're one of the top principles. 10 producers of real estate in the country. And we felt that they were going to be able to grow in a number of adjacencies. They felt that too.
We look like an attractive partner because if you think about another asset manager acquiring Fairfield Residential, for example, in this case, they would also have a lot of those adjacencies already covered by other acquisitions they did with other asset managers, right? And so what we provide is the capability of growing together with them.
And that's a very powerful incentive for any asset manager to want to partner with us is this idea that over the long term, we're very committed to for example, building residential housing in the United States, if I look forward a decade, I think this is going to continue to be a major part of what CalSTRS does.
And so that long-term investing in the ability to help them grow into adjacencies, in this case, I think was very, very compelling for them. And if you looked at their alternative, being acquired by another asset manager, well, the other asset manager, chances are they've got a number of these adjacencies already covered through other parts of the business. And so
Fairfield would be stymied in potentially growing in certain trajectories.
It's hard to be contrarian because you have to wait a lot of times for your thesis to play out. But as a long-term investor, I think that really gives CalSTRS an advantage that essentially we're looking at long-term and we can filter out quarterly reports that have a lot of noise to them.
And I would say as a long-term investor though, there are only a few asset allocation shifts every year where something on the horizon of long-term investing becomes more probable. As it becomes more and more probable it starts to compel you to act or have you consider emphasizing or de-emphasizing assets.
If I were to look at 2025, here's, as an example, what I would consider to be three of the most compelling asset allocation shifts. I think a number of that is sort of contrarian thinking, if you will. So number one, I would say that the probability that the stock market is going to generate below average returns over the next five to 10 years, it's becoming more and more probable.
It's becoming higher. For a large allocator like us, we might shift a few percentage points away from global equities.
This is the first year, for example, that I remember we entered the year and all the strategists were thinking stock market's going up. If you roll back a year, the outlook was mixed and the markets went up significantly, right? The S&P was up over 20%.
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