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
The best idea that won that year was really from our private equity division, the head of our private equity division, Margo Wirth, who thought that preparing for a recession is like the best idea. And that won because as we were thinking about how we handled the 08-09 crisis, we thought we could improve on this. And so we spent
you know, a year, year and a half in front of, before actually COVID hit, you know, how are we going to plan for the next crisis? And so we were ready to deploy significant amounts of capital over a pathway to the private markets. That didn't happen. What happened was we saw a V-shaped recovery.
The biggest thing that we were able to do was really invest back into the global equity markets, which if we didn't rebalance the portfolio, say, we might have been 10% off of our target in global equity, because it kept declining rapidly at that point in time.
So we rebalanced and we were getting set to really target a lot of dislocation in the private markets, but it rebounded in a V-shaped way to the degree that no one got the opportunity really to place significant amounts of capital in that.
And that was way different than 08, 09, where there was this long path of being able to deploy capital and some of the best opportunities were in the private markets. What's interesting about market dislocations is the cause and what tends to be an opportunity at that time. It changes dramatically from one crisis to the next.
Yeah, the lesson learned is keep enough firepower and liquidity to really invest when there are dislocations. In this case, we end up putting on some very, very significant futures positions in the global equity markets. That's a form of leverage, for example. And we were very much rewarded in rebalancing the portfolio in that way. And that's hard to do.
You got to check your gut because the markets are down. They can be down 20%, 30%, even 40%. And here you are buying into it. That is not easy to do, even if you have a plan, right? Because it just doesn't feel right. You feel that the next day and the next day after that, markets can continue to go down. It's hard to have the discipline to do that in reality.
I think that really helps to have a prepared mind, to have a plan that's ready, even though you know that everything's going to be different the next time we go through it. You and I, we won't be able to guess what the cause of that crisis is, and you realize certain things become more dislocated and more interesting in terms of a pricing perspective than others.
You won't be able to guess that either until it actually happens.
This is a really interesting point, David. To me, if I looked globally at all the different asset allocators, and certainly over my lifetime, one of the biggest changes has been global competition, right? I mean, you think about CalSTRS, $350 billion in assets.
We're now like, and I don't know the exact number, I stopped checking this, but at a certain point we were like 25 on the list of global allocators in terms of size, right? The other big trend is every asset allocator has become more and more like an asset manager. The staff has become more and more professional to different degrees.
But I think what differentiates, one of the things that differentiates all the global allocators and one of the advantages we have is great governance. That starts with our board and you need a board that's innovative and that's able to delegate and be strategic with staff. We have that, and they delegated the authority of the investment decisions, how we have flexibility to react to the markets.
We do that by policy. They approve the policy. We've got great governance, starting with the board. But then from staff's perspective, I think one of the things that has made us really successful is how we invest, how you make money, I believe, given my experiences in the market,
bottom up it's transaction by transaction and that can only be done through a building expertise across all these different segments in the market um which we've done to you know to mirror our partners as well i think those have been really keys and then we've delegated the authority um down to that level you know people that have the greatest insight into the assets
And I would say 80% of our transactions work this way. They go into the division, is it private equity? Is it real estate? Is it fill in the blank? And they decide. They have a mature investment committee and they decide. And they can decide quickly, which has made us very dynamic in the marketplace.
But we have a proven history of generating alpha in pretty much every major asset class, every major division here at CalSTRS.
To me, it's a couple of things. So number one, I would define it as being embedded in the structure of the deal or the transaction. And then number two, I would say it's not taking any additional market risk. But what we're doing is we're trying to take operational risks that we think we can mitigate.
And how we would mitigate that is through resources, through expert staff who are capable of being able to structure these transactions and mitigate the operational risks of it. It's best just to provide a simple example.
If I look back at some of the early days of investing in private direct lending, we decided to structure a collaborative model deal with one of our managers where half of our investment, we were in their LP. We were a limited partner. and half investment we were co-investing with them.
So right there, we captured a 50% discount in fees, because we were no fee, no carry on the co-investment side while paying full fees on the LP side of it. But we were also, because we were anchoring some of their funds going forward, and we had the expertise with staff to be able to assess that, because some of these were newer endeavors with less of a track record than you might see.
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