The CalSTRS Collaborative Model investment strategy continues to strengthen the Teachers’ Retirement Fund. The model has saved CalSTRS more than $2 billion since 2017, including more than $360 million in 2023, the CalSTRS investments team told the board during their November Investment Committee meeting.

The Collaborative Model focuses on reducing costs, controlling risks and increasing expected returns by managing more assets internally and leveraging external partnerships to achieve similar benefits.

These savings are typically generated by reducing management fees and carried interest paid by the total fund. Carried interest is profit-sharing that investors pay in some private-asset partnerships.

Co-investments, opportunities that require little to no management fees or carried interest, contribute more than half of the annual savings of the Collaborative Model.

While management fee savings stayed relatively consistent with 2022, carried interest savings decreased. This was no surprise. The rise in management fee savings was expected to stabilize in 2023 as the Collaborative Model settles in on the appropriate balance of internal management and external partnerships. Carried interest savings will fluctuate based on prior year returns, opportunities to exit investments, and private asset deal flow and pacing. The overall increase in managing assets internally helped to offset this decrease in fee savings.

While investment costs can fluctuate significantly each year, CalSTRS is a long-term investor and looks at long-term trends. The $2 billion in cost savings will compound over time and help the fund grow.