Investment Terms Glossary

Investment Terms Glossary

Overview

A


Acquisitions

Private Equity

See leveraged buyouts.


Active Management

Global Equity

An approach to investing in which the portfolio manager seeks to outperform a given benchmark portfolio.


Active Risk

Global Equity

See tracking error.


Active Strategy

Fixed Income

Objective is to maximize returns above a specified benchmark while minimizing risk exposure.  This can be achieved by correctly forecasting broad market trends and/or identifying particular mispriced sectors of a market or securities in a market.  Conversely, a passive strategy focuses on providing a return that closely mimics the return of a benchmark.


Add-on Acquisitions

Private Equity

May also be known as “platform investing.”

A growth strategy, which involves the acquisition of a company that will be the base (or platform) from which future acquisitions will be made.

This strategy invests in consolidating industries by teaming with key industry management to build companies through acquisition and internal growth.  Initially, an industry with an unrecognized market niche, high growth potential and no clear market leader is identified.  If a suitable company can not be identified, the investment manager may recruit a management team to run the new business. The company’s management and the investment manager, acting as a team, will identify and negotiate to buy additional companies within the target industry. A “critical mass” is achieved when the investment manager consolidates formerly entrepreneurial-managed, fragmented operating units into a single portfolio company with standard operating procedures.  As a result, the larger company becomes visible and attractive to a wider group of potential buyers.  Other companies in the market typically are willing to pay a higher price earnings multiple to buy the portfolio company than paid by the investment manager for its component parts.


Adjourning a Shareholder Meeting

Corporate Governance

Extending the voting period past the meeting date, usually so the company can continue to solicit proxies to pass a management proposal or kill a shareholder initiative.


Advance Notice Provision

Corporate Governance

To prevent surprises at the annual meeting, many companies have adopted provisions specifying a precise time period (usually well before the meeting) during which shareholders must provide notice of their intention to nominate directors or present other business from the floor. If they do not meet the advance notice requirements, the company can bar them from nominating their candidates or bringing up their business at the meeting.


Advisory Board

Private Equity

Advisory boards play a role in the governance issues relating to the fundamental aspects of the fund, such as decisions on valuations and management conflicts of interests.  Generally, a majority of the composition of the advisory board is comprised of the largest limited partners in the limited partnership.


After Hours Trading (AHT)

After-Hours Trading


Agency Securities

Fixed Income

Investments issued by federal corporations and federally sponsored corporations that are able to issue debt at a lower cost to such constituencies as farmers, homeowners, and students.


Agency Trade

Soft Dollar

A trade in which the broker acts as agent and executes buy or sell for a customer.  A commission is charged for the service.


Agent

Soft Dollar

The role of a broker/dealer firm when it acts as an intermediary between its customer and another customer.  For this service the broker receives a commission.


Aggregation of Profit and Losses

Private Equity

Aggregation of profit and losses ensures a fairer profit sharing between the general partner and the limited partners.  This calculation is based on the entire performance of the portfolio rather than on a deal by deal basis.


All World Country Index (AWCI)

A global equity benchmark by MSCI index that included developed and emerging markets.


Alpha

Innovation, Global Equity

Portfolio’s return relative to the return of the portfolio’s benchmark.


Alternative Solicitation Process (ASP)

Global Equity

An alternative to the traditional RFP process and is the first step in hiring external managers.


American Depositary Receipts (ADR)

Global Equity

A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange.


Appraisal

Infrastructure

An estimate or opinion of market value.


Appreciation

Real Estate

The percentage change in the market value of a property or portfolio over the period of analysis.


Approved Currencies

Currency Management

The currencies of the countries where positions are permitted.  For the core portion of the CalSTRS Currency Management Program, the countries available to establish positions in are limited to those represented by the Euro, Japan, Switzerland, United Kingdom, Australia and Canada approximately 80 percent of our overall non-U.S. dollar exposure.


Asian Corporate Governance Association (ACGA)

Corporate Governance

The Asian Corporate Governance Association is an independent, non-profit membership organization dedicated to working with investors, companies and regulators in the implementation of effective corporate governance practices throughout Asia. ACGA was founded in 1999 from a belief that corporate governance is fundamental to the long-term development of Asian economies and capital markets.


Asset Allocation

Innovation

Process of allocating investments optimally across a set of asset classes.


Asset Class (Type)

A broadly defined generic group of financial assets, such as stocks or bonds.


Asset International Chief Investment Officer magazine (AICIO)

A magazine and online media covering CIOs across the globe.


Asset Management

Infrastructure, Real Estate

The various disciplines involved with managing real property assets from the time of investment through the time of disposition.  Proper asset management plans and policies include: requirements for operating and capital budgets, property management, leasing, physical property analysis, operational and financial reporting, appraisal, audits, accounting policies, and asset disposition plans (hold/sell analyses).


Asset/Liability Management

Securities Lending Program

The ability to manage the differences between your assets (which, in Securities Lending, are the securities in the cash collateral portfolio(s)) and the liabilities (which, in Securities Lending, are the outstanding loans).


Asset-Backed Securities (ABS)

Fixed Income

Investments that are collateralized by assets such as automobile loans, agricultural equipment loans and credit card loans. The loans feature credit enhancements that lead to high credit ratings and limited investor exposure to the credit of the seller.


Attribution Analysis

Global Equity

A comparison of an account’s performance to its benchmark to identify sources of returns that are different from the benchmark and the impact that this has on an account’s performance.


AUD/USD

Australian Dollar/U.S. Dollar

B


Barrel of Oil Equivalent (BOE)

A unit of energy based on the approximate energy released by burning one barrel (42 U.S. gallons or 158.9873 litres) of crude oil. The U.S. Internal Revenue Service defines it as equal to 5.8 × 106 BTU. The value is necessarily approximate as various grades of oil have slightly different heating values.


Basis Point (BPS)

Fixed Income, Global Equity, Securities Lending Program

Measurement used to describe the percentage change in the value or rate of a financial instrument (1/100 of 1 percent, .0001 in decimal form).


Benchmark

Innovation, Global Equity, Currency Management, Infrastructure

An index derived from database information that allows for comparative performance evaluation within an asset class.

A point of reference that serves as a standard for something’s performance to be measured against. When evaluating performance of any investment, it is important to compare against the right benchmark.

The benchmark for the performance of the CalSTRS Currency Management Program is based on risk-adjusted total return measures relative to the notional value (in U.S. dollars) of the underlying foreign denominated assets over a business cycle of three to five years.


Best Execution

Global Equity, Soft Dollar

Refers to executing client transactions so that the client’s total cost is the most favorable under the particular prevailing circumstances at that time.


Beta

Global Equity

A measure of the sensitivity of a given investment or portfolio to movements in the overall market.


Blank Check Preferred Stock

Corporate Governance

Preferred stock for which the board of directors has broad discretion to establish voting, dividend, conversion and other rights when the stock is issued. It gives the board flexibility to meet changing financial conditions, but it also could be used for defensive purposes, such as for a poison pill or for placement with a friendly investor to block a takeover attempt.


Blend (Growth & Income)

Corporate Governance

Mutual funds invested in securities that provide a combination of growth and income. They generally funnel most of their assets into common stocks of well-established companies that pay regular dividends. They may also invest in high-rated bonds.


Board Diversity

Corporate Governance

Generally, having minorities and women represented on corporate boards, as well as diverse skill-sets, backgrounds, experiences, ages and cultures.


Board Evaluation

Corporate Governance

A self assessment by boards to evaluate the board as a whole and individual members. Ideally, this assessment should cover items such as whether the necessary diversity of skills, backgrounds, experiences, ages, genders, cultural and ethnic composition is appropriate to the company’s long-term needs.


Bond Funds (Fixed Income Funds)

Corporate Governance

A mutual fund that buys interest-bearing debt securities. Bond funds typically specify whether their holdings are corporate, U.S. Treasury, municipal or government-sponsored enterprise bonds.


Bond Indenture

Credit Enhancement

An agreement between an issuer of bonds and a trustee, on behalf of the bondholders, setting forth the terms of the bonds.


Bond Insurance

Credit Enhancement

Non-cancelable insurance purchased by the issuer from a monoline bond insurer pursuant to which the insurer promises to make scheduled payments of interest and principal on a bond issue if the issuer/obligor fails to make timely payments.  When the bond issue is insured, the investor relies upon the credit worthiness of the insurer rather than the issuer.


Borrower

Securities Lending Program

An individual or organization who borrows securities in return for contracting into an obligation to return those securities together with a fee payment.


Breakpoint

Corporate Governance

A discount offered by a mutual fund on the front-end sales charge. The breakpoint may be offered if the client:

  • Is interested in making a large purchase.
  • Already holds other mutual funds offered by the same fund family.
  • Commits to regularly purchasing the mutual fund’s shares.

BRIC

Brazil, Russia, India and China


Broad Market-Weighted Performance Benchmark

Fixed Income

With a market-weighted benchmark, the weighting of each asset class within the benchmark may change due to the market capitalization. Conversely, with a fixed-weighted benchmark, the weightings of each asset class are held constant.


Broker

Global Equity, Soft Dollar

Refers to a person or entity registered with the National Association of Security Dealers and provides investment services (research, soft dollar, etc.) and/or execution services.


Broker votes

Corporate Governance

Proxy votes that can be cast by brokers, on “routine” issues, when no voting instructions are received from the beneficial owner within a specified period before a company’s annual meeting (usually 10-15 days, under stock exchange rules).


Brokerage and Research Services

Soft Dollar

Refers to services and/or products provided by a broker to an investment adviser through a brokerage arrangement, including trade execution; the furnishing of relevant advice relating to the purchasing and selling of securities; analysis and reports relating to relevant market information; and the performance of incidental functions, such as clearance, settlement and custody.


Brokerage Arrangement

Soft Dollar

Refers to an arrangement whereby a broker provides services or products in addition to execution.  Brokerage arrangements include investment adviser-directed and client-directed brokerage arrangements.


Brokerage Fee

Soft Dollar

Refers to the amount on any trade retained by a broker to be used directly or indirectly as payment for execution services and, when applicable, research supplied to the investment adviser or its client in connection with soft dollar arrangements or for benefits provided to the client in client-directed brokerage arrangements.  For these purposes, trades may be conducted on an agency or principal basis.


Brownfield

Infrastructure

Projects and/or assets that are preexisting and have a history of use. This contrasts to “Greenfield” where assets are new projects under development or construction.


Buyouts

Private Equity

See leveraged buyouts.

C


CAD

Canadian Dollar


CalSTRS Home Loan Program

Corporate Governance

A program for active or retired members to apply for conventional, fixed-rate, first mortgage loans for primary residences.


Capital Improvements

Infrastructure, Real Estate

Expenditures that cure or arrest deterioration of assets or add new improvements to prolong its life.


Capped Point

Corporate Governance

A ceiling, or the highest level to which something, such as an adjustable rate mortgage can go.


Carbon Disclosure Project (CDP)

Corporate Governance

An organization based in the United Kingdom which works with shareholders and corporations to disclose the greenhouse gas emissions of major corporations.


Carried Interest

Private Equity

The mechanism by which general partners are compensated for their performance. The general partner’s carried interest is its share of the partnership’s profits, and generally ranges from 10 percent to 30 percent of the total. A 20 percent carried interest has become the industry norm.


CAC 40

France version of the Dow Jones comprised of 40 top stocks in France.


Cash Collateral Asset Management

Securities Lending Program

Investment portfolio managers that are responsible for investing the cash taken as collateral from loans of securities.  Each portfolio is diversified among different asset classes, based upon investment guidelines developed by CalSTRS, and emphasizes safety of principal and adequate liquidity.


Cash Forecast

Fixed Income

The projection provided by CalSTRS’ Operations division of the sources and uses of cash for operation of CalSTRS in the immediate future.


Change-in-control provisions

Corporate Governance

Provisions in executive compensation plans that allow plan participants to cash out options or accelerate benefits in the event of a change in control (sometimes called golden parachutes). The provisions may be explicitly written into a plan when it is adopted, or may simply give the board or compensation committee broad discretion to adjust awards when faced with a change in control. Some executive severance agreements provide payments in the event of the executive’s departure regardless of the reason. The U.S. Internal Revenue Code considers such payments “excessive” if they exceed 2.99 times an executive’s average annual compensation package.


Chartered Alternative Investment Analyst (CAIA)

The CAIA Charter is the educational benchmark for the alternative investment industry


Chartered Financial Analyst Institute (CFAI)

CFA Institute is the global, not-for-profit association of investment professionals that awards the CFA and CIPM designations and offer a range of educational opportunities online and around the world.


Chartered Investment Counselor (CIC)

A designation awarded by the Investment Adviser Association (IAA) to individuals who have earned the chartered financial analyst professional designation, who are currently working as investment advisers, and who have demonstrated investment counseling and advanced portfolio management skills, often by overseeing large accounts and mutual funds. CICs must work in an eligible position for an IAA member firm, uphold a code of ethical conduct and submit professional and character references.


Chicago Board Options Exchange (CBOE)

The largest U.S. options exchange and creator of listed options, continues to set the bar for options trading through product innovation, trading technology and investor education.


Chinese Depositary Receipt (CDR)

A type of depositary receipt that is traded on Chinese stock exchanges. A CDR is a certificate issued by a Chinese bank that represents a pool of foreign equity that is traded on local Chinese exchanges. Foreign companies can use CDRs to allow both Chinese institutional and private investors to own their stock.


Class Action

Corporate Governance

A civil lawsuit brought against a company by a group of persons (the class) similarly affected by the alleged misconduct of corporate officers and directors. Any recovery, less legal fees, is divided among all members of the class in proportion to their losses. Class action suits often allege false and misleading corporate statements, securities fraud or other breaches of directors’ duties to the shareholders.


Classified Board

Corporate Governance

On a classified or staggered board, directors are divided into separate classes, usually three, with each class serving overlapping three-year terms. Companies say this provides stability and continuity of leadership, but it also makes it harder for dissidents to win control of a target company, even if they win a proxy fight, since only a third of the directors are up for election in any one year. (Classification also reduces the effectiveness of cumulative voting by requiring a greater shareholder vote to elect a single director.)  


Client

Soft Dollar

Refers to the entity, including a natural person, investment fund or separate account designated to receive the benefits, including income, from the brokerage generated through securities transactions.  A client may be represented by a trustee or other Fiduciary, who may or may not have investment discretion.


Client-Directed Brokerage Arrangement

Soft Dollar

Refers to arrangement whereby a client directs that trades, for its account, be executed through a specific Broker in exchange for which the client receives a benefit in addition to execution services.

Client-directed brokerage arrangements include rebates, commission banking and commission recapture programs through which the broker provides the client with cash or services or pays certain obligations of the client.  A client may also direct the use of limited lists of broker-not for the purpose of reducing Brokerage costs, but to effect various other goals (e.g., increased diversity by using minority-owned brokers) or geographical concentration.


CME

Chicago Mercantile Exchange


Coalition for Environmentally Responsible Economics (CERES)

Corporate Governance

A non-profit, American network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges, such as global climate change. Founded in 1989, its core mission is integrating sustainability into capital markets.      


Co-Investment

Private Equity, Infrastructure, Real Estate

Investments where the management organization has a capital investment and ownership share.


Collateral

Fixed Income, Securities Lending Program

An asset, such as U.S. dollars or other liquid securities, which is pledged by a borrower to a lender in the event that a loan payment cannot be met. The collateral may be appropriated from the borrower and sold in order to fulfill financial obligations.    


Collateralized

Securities Lending Program

A security that is secured by an asset.


Collateralized Debt Obligation (CDO)

A CDO can be thought of as a promise to pay cash flows to investors in a prescribed sequence, based on how much cash flow the CDO collects from the pool of bonds or other assets it owns. If cash collected by the CDO is insufficient to pay all of its investors, those in the lower layers (tranches) suffer losses first.


Collateralized Letter of Credit

Credit Enhancement

A letter of credit issued by a fronting bank, which has pledged AAA-rated collateral to CalSTRS, in order for CalSTRS to issue a confirming letter of credit.  CalSTRS is the beneficiary of the pledged collateral.  This structure is typically used when the fronting bank has a low credit rating or no credit rating.


Collateralized Loan Obligations (CLO)

Infrastructure

Security backed by the receivables on loans.


Commercial Mortgage-Backed Securities (CMBS)

Fixed Income

Investments that are collateralized by commercial real estate mortgages, similar to a mortgage backed security where payments to investors are received out of the interest and principal of the underlying mortgages.    


Commercial Paper

Credit Enhancement

Short term debt obligations commonly maturing in 270 days or less.


Commercial Paper Funding Facility (CPFF)

A system created by the United States Federal Reserve Board during the global financial crisis of 2008 to improve liquidity in the short-term funding markets.

The CPFF was created on October 27, 2008 and funded a special purpose vehicle (SPV) that purchased three-month unsecured and asset-backed commercial paper (CP) from eligible issuers. This resulted in greater availability of credit for firms doing business. It worked under the aegis of the Federal Reserve Bank of New York where the NY Fed finances the purchase of highly-rated unsecured and asset-backed commercial paper from eligible issuers via eligible primary dealers.

The facility expired February 1, 2010. The final CP purchased matured on April 26, 2010. All CP notes purchased were repaid in full.


Commingled Fund

Infrastructure, Real Estate

A term applied to all open-ended and closed-ended pooled investment vehicles designed for institutional tax-exempt investors. A commingled fund may be organized as a group trust, partnership, corporation, insurance company separate account, private real estate investment trust, or other multiple ownership entity.

OPEN-ENDED FUND: A commingled fund with no finite life, which allows continuous entry and exit of investors, and typically engages in ongoing investment purchase and sale activities.

CLOSED-ENDED FUND: A commingled fund with a stated termination date, with few or no additional investors after the initial formation of the fund.  Closed-ended funds typically purchase a portfolio of properties to hold for the duration of the fund and, as sales occur, typically do not reinvest the sales proceeds.


Commission

Soft Dollar

Refers to the amount paid to the Broker in addition to the price of the security and applicable regulatory fees, on an agency trade.


Commission Rate

Global Equity

Fee paid to a broker for executing a trade.  The fee is based on the number of shares traded, the dollar amount and the liquidity of the trade.


Commodities

Fixed Income, Global Equity

Goods, including such tangible items as movable or personal property, as opposed to services.

With respects to investment means, a physical (real) asset used as an input to a production process.


Commodity Trading Advisor (CTA)

An individual or firm that advises clients on or manages a managed future account, which contains options and futures. CTAs must register with the Commodity Futures Trading Commission and the National Futures Association.


Compensation Discussion & Analysis (CD&A)

Explain and justify the material elements of the company’s compensation of the named executive officers relative to the following items:

  • The objectives of the compensation program(s).
  • What each compensation program is designed to reward.
  • Each element of compensation.
  • Why each element was chosen.
  • How amounts and formulas for pay are determined.
  • How each compensation element and the company’s decisions regarding that element fit into its overall compensation objectives and affect decisions regarding other elements.

Competitive Bids/Offers

Fixed Income

The practice of soliciting more than one bid or offer for a security transaction.  It is based on an identifiable asset in accordance with identified fixed rules for all participants.


Confidential Voting

Corporate Governance

Use of a secret ballot for shareholder votes, with results tabulated by an independent tabulator.


Confirming Letter of Credit

Credit Enhancement

A letter of credit issued by CalSTRS that confirms a fronting bank’s letter of credit.

The CalSTRS confirming letter of credit is drawn upon in the event the fronting bank fails to pay upon a draw.  CalSTRS is in the second loss position.  The credit rating of the bond issue is based on CalSTRS’ rating. 


Convertible Preferred Stock

Private Equity

A class of stock having different rights than common stock, including a liquidation preference over common stock; and allowing the preferred shareholder to convert preferred shares into common shares at some specified conversion ratio.

Conversion typically occurs in conjunction with and initial public offering, providing a means of liquidation for the preferred shareholder.


Core Investment

Infrastructure

Typical core portfolio investments shall be mature, existing assets that produce steady and predictable cash flows.  These assets should be difficult to replicate and will be long life assets. The assets shall be located in well established developed nations.


Core Style

Global Equity

A core manager is typically more aware of the benchmark and constructs portfolios with a bias which is not sufficiently identifiable to categorize the portfolio as growth or value.


Corporate Bond

Fixed Income

A financial obligation for which the issuer (a company) promises to pay the bondholders a specified stream of cash flows, including periodic interest and a principal repayment.


Corporate Governance (CG)

The relationship between all the stakeholders in a company. This includes the shareholders, directors and management of a company, as defined by the corporate charter, formal policy and rule of law.


Correlation

Innovation

Measure of the strength of a relationship between two securities, portfolios or asset classes.


Council of Institutional Investors (CII)

Corporate Governance

An organization with over 250 pension funds and investment related firms that serve to address investment issues of its members. The CII also provides educational seminars and other legal, regulatory and research services.


Counterparty

Currency Management, Securities Lending Program

An individual or organization on the opposite side of a trade.


Counting Shareholder Votes

Corporate Governance

The way a company tallies proxy votes.

Companies historically have counted votes in varying ways. Most specify in the proxy statement the vote required for passage of management proposals (majority of outstanding shares, majority of shares voting or supermajority vote). The method is often murkier on shareholder proposals, with some firms requiring a majority or supermajority of the outstanding shares for passage, or including abstentions and broker non-votes in the total votes cast, thus reducing the vote in favor of the resolution.


Credit Enhancer

Credit Enhancement

A financial institution, such as a bank, or a pension plan, such as CalSTRS, that provides credit enhancement by issuing a letter of credit, which guarantees to investors that principal and interest payments will be made as scheduled, or a line of credit which provides liquidity support for the bond issue.  When the bond issue is credit enhanced, the investor relies upon the creditworthiness of the credit enhancer rather than the issuer.


Credit Rating

Fixed Income

A relative ranking of timely interest payment and principal repayment based on past records of debt repayment, current financial status, and future outlook for the company.


Cross-Hedging

Currency Management

Hedging the risk of one currency by buying or selling another currency.  Because the different currencies are similar but not identical, additional risk may incur.


Cumulative Voting

Corporate Governance

If cumulative voting is allowed at a company, shareholders can allocate the total number of votes they are entitled to cast in the election of directors in any fashion they wish (all for one candidate, split among two or three, or divided evenly among all director nominees). The total number is equal to the number of directors to be elected at the meeting multiplied by the number of shares eligible to be voted. This may enable holders of a minority stake to elect one or more directors if they vote all their shares for a single nominee or small, select number of nominees. It has been touted as a way for institutional investors to improve corporate governance by electing qualified, independent, accountable directors to boards, although companies say it could lead to a “constituency” representation and a divided board. While nearly half the states once mandated cumulative voting in corporate elections, most now leave it up to companies, and most companies have eliminated it.  


Currency

Currency Management

Any form of money that is in public circulation.


Currency Effect

Currency Management

The gain or loss on foreign investments due to changes in the relative value of assets denominated in a currency other than the principal currency. A rising domestic currency means foreign investments will result in lower returns when converted back to the domestic currency. The opposite is true for a declining domestic currency.


Currency Forward

Currency Management

A forward contract that locks-in the price an entity can buy or sell currency on a future date (also known as the value date). In currency forward contracts, the contract holders are obligated to buy or sell the currency at a specified future date.  These contracts cannot be transferred.


Currency Futures

Currency Management

A transferable futures contract that specifies the price at which a specified currency can be bought or sold at a future date.  Since these contracts are marked-to-market daily, investors can-by closing out their position-exit from their obligation to buy or sell the currency prior to the contract’s delivery date.


Currency Hedging

Currency Management

A strategy used to manage the risk associated with holding non-U.S. assets in its local currency.


Currency Option

Currency Management

A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified price during a specified period of time.


Currency Overlay

Currency Management

The outsourcing of currency risk management to a specialist firm, known as the overlay manager.

This is used in international investment portfolios to separate the management of currency risk from the asset allocation and security selection decisions of the investor’s money managers.  The overlay manager’s positions are “overlaid” on the portfolios created by the other money managers, whose activities continue unaffected.


Currency Risk

Currency Management

The risk related to currency fluctuations.  For CalSTRS, it is the fluctuation of any foreign currency compared to the U.S. dollar. Non-U.S. investments are complicated by the currency fluctuation and conversion between countries. A high quality investment in another country may prove to be worth less because of a weak currency.


CUSIP Number

IT/Operations

A unique nine-character alphanumeric code appearing on the face of each stock or bond certificate that is assigned to a security by Standard & Poor’s Corporation. CUSIP numbers are the property of the American Bankers Association and are administered by Standard & Poor’s. The number is used to expedite clearance and settlement.


Custodian

Securities Lending Program

An agent, such as a broker or a bank that stores a customer’s investments for safekeeping.


Cyber Meetings

Corporate Governance

Annual shareholder meetings conducted by remote communication, rather than at a specific site.

D


Debt Related Investment Strategies

Private Equity

Include subordinated debt and distressed debt investment strategies.    


Derivative

Fixed Income, Global Equity

A derivative is a security whose price/return is dependent upon the price/return of some other underlying asset. Futures contracts, forward contracts, options and swaps are the most common types of derivatives.


Derivative Suit

Corporate Governance

A lawsuit brought by a shareholder on behalf of the corporation to remedy an alleged wrong to the corporation. Any settlement goes to the company, not to specific shareholders. Corporate governance or board changes, designed to help prevent the recurrence of the alleged breaches of directors’ duties, are sometimes included in the settlement of class action and derivative suits.


Deutscher Aktien IndeX (DAX)

Deutscher Aktien IndeX, formerly Deutscher Aktien-Index (German stock index) is a blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. Prices are taken from the electronic Xetra trading system.

According to Deutsche Börse, the operator of Xetra, DAX measures the performance of the Prime Standard’s 30 largest German companies in terms of order book volume and market capitalization. It is the equivalent of the FT 30 and the Dow Jones Industrial Average, and because of its small selection it does not necessarily represent the vitality of the economy as whole.


Developed Market (DM)

Developed market as defined by an index provider, the classification differs between the equity and fixed income universe.


Digital (Digital Option, Binary Option)

Innovation

An option with a fixed, predetermined payoff if the underlying instrument or index is at or beyond the strike at expiration. The value of the payoff is not affected by the magnitude of the difference between the underlying and the strike price.


Dilution

Corporate Governance

When stock options are exercised, a company’s profits and assets are spread over a larger number of shares, thus reducing, or “diluting,” the value and voting power of existing stockholders’ shares. Shareholders often consider the total potential dilution from all of the company’s option plans, including outstanding options and shares available for future grant, when voting on a new option plan proposal.


Direct Investment

Infrastructure, Real Estate

An investment in which CalSTRS has a direct ownership interest in a property or group of properties.


Direct Investments

Private Equity

Direct investments are made outside of a limited partnership structure.

While a co-investment is made alongside of a limited partnership investment, a direct investment is not. Direct investments need a greater level of due diligence and involve a greater level of risk in comparison to a co-investment.


Direct Pay Letter of Credit

Credit Enhancement

The Direct Pay LOC Bank (CalSTRS) issues a fronting letter of credit and a bank issues a standby letter of credit.  For this letter of credit, the investor (through the trustee) looks to the Direct Pay LOC Bank for all interest and principal payments to investors.  The obligor then reimburses the Direct Pay LOC Bank.  If the obligor fails to reimburse for the LOC drawing, the standby bank reimburses CalSTRS.


Discretion

Infrastructure, Real Estate

The level of authority given to an investment manager over the investment and management of a client’s capital once that capital is allocated to the investment manager.


Distressed Debt

Private Equity

A form of recovery investing that focus on the debt of a distressed company. The investment in debt securities (generally senior-secured debt) of troubled or bankrupt companies. 


Distributions

Private Equity

Cash and/or securities paid out to the limited partners from the limited partnership.


Diversification

Fixed Income, Innovation, Global Equity

Investing in a wide range of securities/or asset classes in order to reduce financial risk.


Dow Jones Industrials

Global Equity

A price-weighted average of 30 actively traded blue chip stocks. It is the oldest and most traditionally quoted indicator of changes in the market.


Dual Class Stock

Corporate Governance

Some companies have two or more classes of common stock, whose voting rights may vary. One class may have super voting rights (five or 10 votes per share), or a fraction of a vote, or no vote. Sometimes one class has special rights, such as the right to elect a certain percentage of the directors. One class is often held by a founding family or controlling shareholder to retain control of the company even though they don’t own a majority of the stock. Dual class capitalization plans are not antitakeover measures per se, but they may help management (or another insider group) deter a takeover when they control the class of stock with higher or special voting rights.


Duration

Fixed Income

The weighted average maturity of the present value of a bond’s cash flow stream.  A measure of the change in price for a small movement in interest rates.

E


EAFE (EAFE)

Europe Australia Far East index, a global equity benchmark by MSCI index of 21 major developed nations.  The index covers the top 80 percent of the publicly traded equities in each market.


Earnings per share (EPS)

The portion of a company’s profit allocated to each outstanding share of common stock.


Emerging

Private Equity

In private equity, first- second- and third-time funds are considered to be in the emerging space. The firm must have a maximum of 55 percent non-employee-owned ownership; that is, employees at the firm must own at least 45 percent of the equity of the firm. Generally, a firm has $600 million or less in assets under management (AUM) for expansion/buyout funds or $300 million or less in assets under management for venture capital funds.

For the purposes of this definition:

  1. Direct or indirect ownership (though a different legal entity owned by the employees) is included in the 45 percent employee ownership.
  2. The word employee includes principals, members, partners or any other individuals who are actively involved in the day-today operation of the firm.

Emerging Market (EM)

Emerging market as defined by an index provider, the classification differs between the equity and fixed income universe.


Employer

Credit Enhancement

The state or any agency or political subdivision thereof for which creditable service subject to coverage by the State Teachers’ Retirement Plan is performed.


Employing Agency

Credit Enhancement

See employer.


Enhanced Indexing Strategy

Fixed Income

A technique for making relatively small adjustments to an indexed portfolio in order to increase the return slightly above the return on the index.


Equal Access to the Proxy Statement

Corporate Governance

Giving shareholders access to corporate proxy statements for the purpose of nominating directors or commenting on the performance of the incumbent board, as some shareholder proposals have called for over the years.


Equity Expansion

Private Equity

Equity expansion investments involve the purchase of substantial, long-term minority equity positions in undervalued, privately or publicly held companies.  This strategy is similar in style to later stage venture capital investments, except that equity expansion investments are generally larger, and are typically less technology oriented.  These small and medium sized companies have grown from the start-up stage to profitability and are poised for continued rapid growth.


ESG

Environmental, social and governance topics such as climate change, energy use, political contributions, labor and human rights.


Exchange Traded Funds (ETFs)

Global Equity

An investment vehicle traded on stock exchanges which hold assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500.


Executive Compensation Packages

Corporate Governance

Executive compensation packages, including base salary, bonuses and stock awards, are governed by the compensation committee of the board, which approves them initially and has the discretion to change them. Shareholders’ only say in the matter usually has been in voting on proposed stock option plans or on requests to increase the number of authorized shares (which may be needed to implement option plans, among other things).

Under federal law, companies can get a tax deduction for compensation packages of over $1 million paid to their top five executive officers only if the stock and cash bonus plans are “performance-based.” Companies set their own criteria for that.


Extended Settlement Practices

Currency Management

Settlement for currency forwards takes place on the value date.  Value dates for CalSTRS Currency Management Program are limited to a maximum of one year.

F


Failed Trade

Fixed Income

Purchased or sold investment securities that are not delivered on the contracted settlement date.


Fair Market Value

Infrastructure, Real Estate

The highest price a property would bring if exposed for sale in the open market by a willing seller to a willing buyer with both parties being fully informed of all the uses and purposes to which the property is reasonably adaptable and available.


Federal Reserve

Fixed Income

The independent central bank that influences the supply of money and credit in the United States through its control of bank reserves.  Also called the Fed.


Fiduciary

Infrastructure, Real Estate

A person in whom CalSTRS reposes, and the person accepts, a special trust and confidence involving the exercise of professional expertise and discretion.


Fiduciary

Soft Dollar

Refers to any entity, or a natural person, that has discretionary authority or responsibility for the management of a client’s assets or other relationships of special trust.


Financial Accounting Standards Board (FASB)

Corporate Governance

A private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public’s interest.


First Time Limited Partnerships

Private Equity

All funds not identified as follow-on limited partnerships.


Fiscal Stimulus

Fixed Income

A fiscal policy of incurring budget deficits to stimulate a weak economy.


Flow of Funds Analysis

Currency Management

Aggregate demand analysis involving trade balance and investment flows as it pertains to the foreign exchange market.  Often driven by interest rate differentials, investors have incentives to buy into foreign markets that have higher average interest rates than their own by purchasing bonds, short-term notes, and even stocks.  The resulting cross-border exchange creates increased demand for higher yielding currencies which affects foreign exchange rates.


Follow-On Limited Partnerships

Private Equity

The second and all subsequent funds raised by a management team that are included in CalSTRS’ portfolio and rated as Tier 1 or Tier 2.  Funds formed by a management team that had substantial changes in the investment team and/or their investment strategy and/or scope of their business from domestic to international will not be classified under this category.


Forward Agreements

Global Equity

An agreement between two parties in which one party, the buyer, agrees to buy from the other party, the seller, an underlying asset at a later date for a price established at the start of the agreement


Free Float

Global Equity

A method by which the market capitalization of an index’s underlying companies is calculated. Free-float methodology market capitalization is calculated by taking the equity’s price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments


Front Running

Fixed Income, Global Equity

Practice whereby a securities or commodities trader takes a POSITION to capitalize in advance knowledge of a large upcoming transaction expected to influence the market price.


Frontier Market (FM)

Frontier market and investment market in an early developed nation such as African nations.


Fundamental Environment

Fixed Income

The economic environment encompassing; interest rates, inflation, gross national product, unemployment, inventories and consumer spending.


Futures

Global Equity

An enforceable contract between a buyer (seller) and an established exchange or its clearinghouse in which the buyer (seller) agrees to take (make) delivery of something at a specified price at the end of the designated period of time.

G


GBP/USD

British Pound/U.S. Dollar


General Consultant

Global Equity

A consultant that addresses questions concerning general types of investments such as equity and fixed income for both domestic and international securities.


General Partner

Private Equity

Managing partner of a limited partnership responsible for performing the day-to-day administrative operations of the partnership and acting as investment advisor to the partnership. The general partner typically invests 1 percent of the capital and retains 20 percent of the profits.


Global Depository Receipts (GDR)

Global Equity

GDRs are certificates issued by a depository bank, which represent ownership of an underlying number of foreign shares.  GDRs are commonly listed on international stock exchanges such as the London Stock Exchange.


Global Real Estate Sustainability Benchmark (GRESB)

An industry-driven organization committed to assessing the sustainability performance of real estate portfolios (public, private and direct) around the globe. The dynamic benchmark is used by institutional investors to engage with their investments with the aim to improve the sustainability performance of their investment portfolio, and the global property sector at large.


Government Accounting Standards Board (GASB)

An organization whose main purpose is to improve and create accounting reporting standards or generally accepted accounting principles (GAAP).


Government Bonds

Fixed Income

Obligations of the U.S. government, regarded as the least risky, highest-grade securities issues. The major types of debt instruments issued by the U.S. government are: Treasury Bills, Saving Bonds, Treasury Notes, and Treasury Bonds.


Greenfield

Infrastructure

Projects or assets that are new, under development or construction.  This contrasts with “brown filed” where the assets already exist and have a history.


Ground Lease

Real Estate

A lease of land only, not including any improvements on the property.


Growth Style

Global Equity

This style of investment constructs portfolios that have more earnings potential than the benchmark and therefore have the potential to produce superior returns over the benchmark.  These portfolios generally exhibit more risk than the benchmark.

H


Hard Dollar

Soft Dollar

A term that refers to cash.


Hedge Ratios

Currency Management

A ratio comparing the number of currency forwards sold with the size of the position in the underlying currency.


High Water Mark

Global Equity

Looks at the index value at various points during the contract, usually annual anniversaries. It then takes the highest of these values and compares it to the index level at the start of the term.


High Yield

Fixed Income

A high-yield bond is by definition a “non-investment grade” security under the Trade Reporting and Compliance Engine (TRACE) Rules. A high-yield bond is a corporate bond that is rated as speculative grade by a nationally recognized statistical rating agency.


High Yield Securities

Fixed Income

A higher-risk debt security that is rated less than Baa3/BBB- by the rating agencies.


Home Affordable Modification Program (HAMP)

A loan modification program introduced in 2009 to promote stability in the housing market.

The Home Affordable Modification Program (HAMP) was aimed at helping homeowners who were devoting more than 31 percent their of gross income toward mortgage payments. Eligible homeowners can receive adjustments to the mortgage principal, interest rate or payments in order to get the percentage of income going to payments below 31 percent.


Home Loan Program

See CalSTRS Home Loan Program.


Hotel

Real Estate

May include budget, economy, mid-scale, upscale, luxury, extended stay and independent hotels and any other properties that provide hospitality services.


Hurdle Rate

Private Equity

A rate of return that must be met before the general partner can share in the carried interest.

I


Income

Infrastructure, Real Estate

The component of return derived from property or portfolio operations during the period of analysis.


Independent Board Chair

Corporate Governance

A board chairman who meets the criteria for independent directors. This definition goes beyond simply separating the positions of chair and CEO. It means that not only should the CEO not be the board chair, but neither should the former CEO, another company employee or anyone else with ties to the company.


Independent Directors

Corporate Governance

Directors whose only nontrivial professional, familial or financial connection to the corporation or its CEO is their directorship. Various groups apply look back criteria under which they continue to define directors as non-independent for a specified period (usually two, three or five years) after the director’s affiliation with the company ceased.


Index

Fixed Income

A defined representative collection of securities used to measure the change in value of the securities market on a monthly basis.


Indexed Portfolio

Global Equity

A portfolio which replicates a broad market index (benchmark). Objective is to minimize tracking error while providing market returns.


Industrial

May include manufacturing, R&D Flex, Office Showroom, freight forwarding/logistics and warehouse distribution.


Inflation linked bonds (LINKERS)

Bonds that adjust its value for inflation.


Inflation-Linked Assets

Real Estate

Security which is expected to deliver a higher return than the rate of inflation.


Infrastructure

Innovation

CalSTRS term to define an investment opportunity. This term typically refers to the technical structures that support a society, such as roads, water supply, sewers, power grids, telecommunications, and so forth.  


Initial Public Offering (IPO)

Infrastructure

The sale or distribution of a stock or a portfolio company to the public for the first time.


Institute of Fiduciary Education (IFE)

IFE conducts educational seminars, providing an excellent forum for executives of the world’s largest corporation, public and Taft Hartley pension funds, foundations and endowments.


Interest Rate Differentials

Private Equity

A differential measuring the gap in interest rates between two similar interest-bearing assets.  Traders in the foreign exchange market use interest rate differentials (IRD) when pricing forward exchange rates.

Based on the interest rate parity, a trader can create an expectation of the future exchange rate between two currencies and set the premium (or discount) on the current market exchange rate futures contracts.


Internal Rate of Return (IRR)

Infrastructure, Real Estate

The discount rate at which the present value of future cash flows of an investment equals the cost of the investment.  It is determined when the net present value of the cash outflows (the cost of the investment) and the cash inflows (returns on the investment) equal zero, the rate of discount being used is the IRR.


International Buyout

Private Equity

An international buyout fund is a limited partnership that generally focuses on acquisition, equity expansion, or later stage investment strategies; however, the fund’s primary geographic focus is outside of the United States.


International Corporate Governance Network (ICGN)

Private Equity

The ICGN is a global membership organization of over 500 leaders in corporate governance based in 50 countries with a mission to raise standards of corporate governance worldwide.


International Network on Climate Risk (INCR)

Corporate Governance

INCR supports more than 90 institutional investors with assets exceeding $9 trillion by identifying the financial opportunities and risks in climate change and by tackling the policy and governance issues that impede investor progress toward more sustainable capital markets. 


Investment Advisor

Corporate Governance

Refers to any entity, or a natural person, that serves in the capacity of asset adviser to a client. The investment adviser may have sole, shared or no investment discretion over an account.  


Investment Decision-Making Process

Soft Dollar

Refers to the quantitative and qualitative processes and related tools used by the investment adviser in rendering investment advice to its clients, including financial analysis, trading and risk analysis, securities selection, broker selection, asset allocation and suitability analysis.


Investment Discretion

Soft Dollar

Refers to the sole or shared authority (whether or not exercised) to determine what securities or other assets to purchase or sell on behalf of a client.


Investment Grade Securities

Soft Dollar

Investment-grade is restricted to those bonds rated Baa3/BBB- and above by the rating agencies.


Investment Guidelines

Fixed Income

This is a document that establishes the parameters through which the investment manager will invest CalSTRS’ assets.  These guidelines specify valid securities for the portfolio, the return expected from the manager, how the manager will be evaluated and the period over which the manager will be evaluated.


Investment Manager

Global Equity

A company that, by contractual agreement, provides infrastructure investment opportunities and/or property asset management services.


Investment Officer

Infrastructure, Real Estate

Any one of the in-house investment professionals in the CalSTRS Investments unit.


Investment Policy and Management Plan

Fixed Income

This document outlines CalSTRS’ general and financial objectives including specific investment strategy. This document is the result of studies that include the assets and liabilities for the System.


Investment Style

Global Equity

A natural grouping of investment disciplines that has some predictive power in explaining the future dispersion in returns across portfolios


Investor Network on Climate Risk (INCR)

Global Equity

The Investor Network on Climate Risk is a network of investors and financial institutions that promotes better understanding of the financial risks and investment opportunities posed by climate change. INCR is coordinated by Ceres, a coalition of investors and environmental groups working to advance sustainable prosperity.    


Investor Responsibility Research Center Institute (IRRCi)

The IRRC Institute (IRRCi) is a not-for-profit organization established in 2006 that serves as a funder of environmental, social and corporate governance research. The IRRCi provides unbiased research that does not advocate for any side of an issue. Instead, the research is a tool for investors, policymakers, and interested stakeholders to make informed, fact-based decisions.


ISS

ISS (Risk Metrics) – a leader in proxy voting and corporate governance matters and delivers corporate governance solutions that enhance the interaction between shareholders and companies, in order to help shareholders manage risk and drive value. Owned by MSCI.

J


J-Curve

Corporate Governance

The J-Curve phenomenon is the effect of the cash flow behavior of a partnership.  It can be summarized as the first year’s investment expenses of investing in a fund that has yet to harvest its capital gains in the future. This normally translates into a negative IRR in the early years of the fund.  The plot of the partnership values versus time generally resembles a “J.”


Joint Venture

Private Equity

A structure wherein CalSTRS and a partner form a partnership to purchase and/or operate an investment or investments.


Just In Time Capital Call

Infrastructure, Real Estate

The practice is to take capital calls as needed on a transaction per transaction basis.


Just vote no campaign

Private Equity

A solicitation urging shareholders to withhold their votes from a board as a way of “sending a message” regarding the company’s performance or a specific corporate governance issue. Such efforts, usually involving letters to shareholders and press releases, call attention to the reasons for opposing the board, and often result in a substantial number of votes being withheld, at a cost far below that for conducting a full-fledged proxy contest.

K


Key Man Provision

Corporate Governance

Limited partners are demanding the right to suspend the funding of the partnership if some of the key people were to leave the firm.  This provision is designed to assure the continuity of the firm, and to assure that success (if related to various individuals) stays within the firm.

L


Land

Private Equity

Undeveloped land parcels.


Large Cap Stocks

Real Estate

Stocks of bigger companies whose market value is above a designated minimum, such as $5 billion.


Lead Director

Global Equity

A director elected from among the board’s independent directors to serve as their leader at companies where the CEO is the board chair. The lead director would consult with the CEO/chair on the makeup of board committees, meeting agendas, board procedures, the adequacy of information given to the board and other issues, and convene executive sessions of the independent directors to assess CEO and corporate performance, conduct board evaluations, etc.


Lead Plaintiff

Corporate Governance

The shareholder chosen by the court to direct class action litigation. The lead plaintiff usually selects the lead counsel. The court may appoint co-lead plaintiffs.


Lendable Asset

Corporate Governance

A security that has an established market or demand by borrowers, such as domestic and international equities and fixed income, in order to provide liquidity and facilitate investment strategies.


Lender

Securities Lending Program

An individual or organization that lends securities to a borrower.


Lending Terms

Securities Lending Program

Specific requirements of a loan, such as length of the loan, type of collateral, and rebate rate.


Letter of Credit

Securities Lending Program

An instrument issued by a bank or pension plan that unconditionally promises to make debt service payments and provide liquidity support on a bond issue up to a stated amount for a specified period of time upon receipt of proper notice in the event of a default.  Letters of credit are usually required for variable rate bond issues.


Leverage

Credit Enhancement

The use of borrowed funds to increase purchasing power and, ideally, to increase the profitability of an investment.


Leveraged Buyouts (Acquisitions)

Infrastructure, Real Estate

Acquisitions involve the purchase of all or part of the stock or assets of a company utilizing a significant amount of borrowed capital and a relatively small portion of equity capital.  Borrowed capital typically consists of some combination of senior and subordinated debt.  The company may be privately or publicly owned, or a subsidiary or division of a privately or publicly owned company.

Acquisitions generally include companies with stable cash flows, high market share, and high profit margins, selling low or non-technology products in industries not subject to wide profitability swings. The general goal behind an acquisition investment is to acquire a company, division or subsidiary that is currently undervalued, and whose assets may be underutilized, and restructure and revitalize it.  Ideally, the revitalized company can then be sold, recapitalized, or taken public at a substantial premium to its pre-buyout value.


LIBOR

London Inter-bank Offering Rate – this is a series of rates set everyday by the British Bankers Association based on a survey of the estimate borrowing rates of major global banks.  The rates include one day to one year.  LIBOR is then posted for the day.


Lifecycle Funds

Private Equity

Lifecycle funds, also known as target date funds, are mutual funds with an asset allocation designed to follow you throughout your working life into retirement. They frequently start out with aggressive investments and automatically grow increasingly conservative as you grow older. CalSTRS Pension2 Easy Choice Portfolios are similar to lifecycle funds but also are risk calibrated.


Limited Partner

Corporate Governance

The investors in a limited partnership, generally providing 99 percent of the capital and receiving 80 percent of the profits.  Limited partners do not participate in the management of the partnership’s activities.  However, they normally have the right to vote to approve or disapprove amendments made to the limited partnership agreement.


Limited Partnership

Private Equity

A partnership with both general and limited partners in which the general partner manages the business and assumes full liability for the partnership obligations with the liability of the limited partners generally restricted to their capital contributions.


Limited Partnerships

Infrastructure, Real Estate

Organization made up of a general partner, who manages the operations, and limited partners, who invest capital but have limited liability.  Limited partners are not involved in the day-to-day management of the partnership and generally cannot lose more than their capital contribution.


Line of Credit/Liquidity Facility

Private Equity

This form of LOC is an availability to purchase securities under specific situations.  The bonds or commercial paper that this facility supports may be remarketed on a daily, weekly, or monthly basis.  There is a need to have their marketability guaranteed.  If there is a failed remarketing, CalSTRS may be required to “purchase” these bonds and receive pre-agreed interest payments.  In the case of commercial paper, this commitment may be revocable under certain circumstances.


Liquidity

Credit Enhancement

Refers to availability of a security to be traded.  An issue that is readily available is considered to be liquid, an issue that does not trade very often is deemed illiquid. The ease with which a bond can be purchased or sold at a fair price in a timely manner.


Liquidity Portfolio

Fixed Income, Global Equity

For CalSTRS’ purposes, this is the Short-Term Fixed Income Portfolio that provides cash flow for funding transactions for the system, such as benefit payments, investment manager activity, and asset allocation.  Examples of short-term investments include U.S. Treasury, agency and money market securities (commercial paper, certificates of deposit, Eurodollar deposits and repurchase agreements).


Loan Fees

Fixed Income

Loan fees can vary from a small percentage of the amount you borrow to a rather substantial percentage of the total value of what you’d be eligible to borrow.


Lookback Provision

Fixed Income

The lookback provision guarantees that the stated profit allocation is met at the end of the partnership’s term with respect to the limited partners.

M


Majority of Independent Directors

Global Equity

There is widespread support in both the shareholder and business communities for having a majority of independent directors on corporate boards.


Management Buyout (MBO)

Buyout by the existing company’s management.


Management Fees

Corporate Governance

The management fee is designed to compensate the general partner.  This fee is used to provide the partnership with such resources as investment and clerical personnel, office space, and administrative services required by the partnership.  Generally, the fee ranges from 1.5 percent to 3.0 percent of capital commitments.


Margin Level

Private Equity

The amount of cash or eligible securities the borrower will deposit when borrowing securities.


Marked-To-Market

Securities Lending Program

An adjustment in the valuation of a security to reflect the current market values of the respective securities in the portfolio.  This process is also used to ensure that margin accounts are in compliance with maintenance requirements.


Market Capitalization

Private Equity

The total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to sales or total asset figures


Market Capitalization

Securities Lending Program

The outstanding equity market capitalization of a given company computed by multiplying the company’s current market price by current common shares outstanding.


Market Cycle

Credit Enhancement

Generally considered to be three to five years.


Master Limited Partnership (MLP)

A limited partnership that is publicly traded on a securities exchange. The entity combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.


Mean Variance Optimization (MVO)

Mean–variance optimization (MVO) is a quantitative tool used to spread investment across different assets within a portfolio by assessing the trade-off between risk and return in order to maximize the return while minimizing any risks. The concept was devised by economist Harry M. Markowitz, who developed an algorithm to calculate optimized returns over a specified period. MVO is part of Markowitz’s modern portfolio theory (MPT), which assumes that investors will optimize their investment portfolios through diversifying their investments on a balanced risk–return basis. Markowitz’s concept of efficiency as laid out in MVO contributed to the development of the capital asset pricing model (CAPM).


Chicago Mercantile Exchange (CME)

The Chicago Mercantile Exchange (CME) (often called the “Chicago Merc,” or the “Merc”) is an American financial and commodity derivative exchange based in Chicago and located at 20 S. Wacker Drive.

The CME was founded in 1898 as the Chicago Butter and Egg Board, an agricultural commodities exchange. Originally, the exchange was a non-profit organization. The Merc demutualized in November 2000, went public in December 2002, and merged with the Chicago Board of Trade in July 2007 to become a designated contract market of the CME Group Inc., which operates both markets.


Merger and Acquisitions (M&A)

Mergers and acquisitions are two broad types of restructuring through which managers seek economies of scale, enhanced market visibility, and other efficiencies


Mezzanine

Fixed Income

Mezzanine investments are in unsecured or junior obligations in financing.  They typically earn a current coupon or dividend and have warrants on common stocks or conversion features to enhance returns.


Mid Cap

Private Equity

Stocks of mid-sized companies whose market value falls between a designated minimum and maximum, such as $1 billion to $5 billion.


Mixed-Use

Global Equity

Refers to services and/or products provided to an investment adviser by a broker through a brokerage arrangement that have the capacity to be used for both the investment decision-making process and management of the investment firm.


Monetary Stimulus

Soft Dollar

The Federal Reserve manipulates the money supply either through open market transactions, member bank reserve requirements, or through changing the discount rate.


Monoline Insurer

Fixed Income

An insurer that writes only financial guaranty insurance.


Mortgaged-Backed Security

Credit Enhancement

A security that is issued by a federal agency, such as the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, or the Government National Mortgage Association, that is backed by mortgages. Payments to investors are received out of the interest and principal of the underlying mortgages.


MSCI (MSCI)

A public company that publishes major global indices, such as EAFE and ACWI. Formally owned by two firms, Morgan Stanley and Capital International.


MSCI EAFE Plus Canada Index

Fixed Income

The Morgan Stanley Capital International Europe, Australia & Far East Plus Canada Index. This index is a capitalization weighted index of all of the companies found in the developed country indices from Europe, Australasia, the Far East and Canada that are in the MSCI World Index, as well.


Multi-Currency Horizon (MCH)

Currency Management

An accounting system that replaced original Batch processing of single currencies.  It is a process set up by State Street Bank as part of their enterprise architecture. 


Multi-Family

May include high-rise, low-rise, and garden complexes of multiple rental units in an apartment building. May also include condominiums, student-oriented complexes and senior rental housing with limited or no medical services.


Multiple of Money

Real Estate

Multiple of money is often used to measure performance.  This is a cumulative return, identifying the return on an investment over the term of the partnership.  A multiple that is greater than one indicates that the partnership’s total value exceeds the amount of capital contributed to date, whereas, a multiple less than one indicates that the partnership’s total value is less than the amount of capital contributed.  In summary, achieving a high annualized rate of return over a long period of time is more impressive than achieving a high annualized rate of return over a shorter period of time.

N


NASDAQ

Private Equity

The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. “NASDAQ” originally stood for “National Association of Securities Dealers Automated Quotations,” but the exchange’s official stance is that the acronym is obsolete. It is the largest electronic screen-based equity securities trading market in the United States and fourth largest by market capitalization in the world. With 2906 ticker symbols, it has more trading volume than any other stock exchange in the world.    


National Association of Corporate Directors

Global Equity

An independent, not-for-profit membership organization, dedicated to serving the corporate governance needs of directors of public, private, and non-profit organizations.    


National Association of Corporate Directors (NACD)

Corporate Governance

NACD was founded in 1977 as the only national membership organization created for and by directors. NACD’s mission is to advance exemplary board leadership -for directors, by directors. We deliver the knowledge and insight that board members need to confidently navigate complex business challenges and enhance shareowner value. We amplify the collective voice of directors in setting a substantive policy agenda.


National Association of State Investment Officers (NASIO)

The association of State Pension Chief Investment Officers


National Association of State Retirement Administrators (NASRA)

The association of state pension CEOs / Executive Directors.


National Council on Teacher Retirement (NCTR)

The National Council on Teacher Retirement (NCTR) is constituted as an independent association dedicated to safeguarding the integrity of public retirement systems in the United States and its territories to which teachers belong and to promoting the rights and benefits of all present and future members of the systems.


Natural Resources

Corporate Governance

These investments utilize strategies that derive their return from the management of and the independent price movements in a particular resource.  These investments are more specialized with a corresponding increase in risk.  Sub-categories of this group include:

  • Oil and Gas - provides funding for the purchase or development of energy producing properties or companies operating within that sector.
  • Timberland/Farmland – provides funding for the purchase, development and/or lease of land for both growth and income-oriented strategies.

NCREIF Index

Private Equity

National Council of Real Estate Investment Fiduciaries Index; a property-level performance benchmark for institutionally owned real estate, calculated on a quarterly basis.


Net Asset Value (NAV)

Real Estate

Represents total assets at fair market value minus liabilities.


Net Operating Income (NOI)

Infrastructure, Real Estate

Rental and other income of a property, less operating expenses, but before the deduction of capital expenditures and debt service.


New & Next Generation Partnerships

Infrastructure, Real Estate

The New & Next Generation Program was established by the Investment Committee in 2003. It involves partnerships that are raising their first-, second-, and third-time institutional funds or partnerships formed by junior or senior level partners that have left a prior partnership to form a new general partner.


New Firm

Private Equity

Investment manager with whom CalSTRS Infrastructure has a contractual relationship of less than one year.


New Limited Partnerships

Infrastructure, Real Estate

Funds that are new to the CalSTRS Alternative Investment Portfolio, these may include mature General Partners’ raising fund 4 or greater.


New York Mercantile Exchange (NYMEX)

The world’s largest physical commodity exchange and North America’s most important trading exchange for energy and precious metals. It deals in crude oil, gasoline, heating oil, natural gas, propane, gold, silver, platinum, palladium and copper.


New York Stock Exchange (NYSE)

A stock exchange based in New York City, which is considered the largest equities– based exchange in the world based on total market capitalization of its listed securities. Also known as the “Big Board”, the NYSE relied for many years on floor trading only, using the open outcry system. Today, more than half of all NYSE trades are conducted electronically, although floor traders are still used to set pricing and deal in high volume institutional trading.


Nomination and Election of Directors

Private Equity

Most director nominations are made by the company’s nominating committee or full board, with the approval (or upon the recommendation) of the CEO and sometimes with the help of a search firm. Some companies say they will accept nominations from shareholders; some will not. No companies nominate more candidates than there are seats up for election, so unless there is a proxy contest, shareholders have no choice of who to vote for. Thus the “election” of directors actually is a ratification of the company slate.


Non-Core Investment Program

Corporate Governance

A program that provides additional income to the fund beyond the traditional asset classes within the investment office.  The CalSTRS programs that fall into this category are: Credit Enhancement, Currency Hedging, Home Loan and Securities Lending.


Non-Traditional Asset Classes/Strategies

Securities Lending Program

Investments whose investment performance not correlated with that of stocks, bonds, real estate, private equity, and cash.  It may include hedge funds and commodities.  CalSTRS may investigate alternative investment strategies for the stock or bond traditional asset class.


Non-Traditional Property Type

Innovation

Non-conventional property types such as timber, senior housing, single family housing, natural resources, land, mini-storage, etc.


Non-U.S. (or Non-Dollar)

Real Estate

Investments made in currencies other than the U.S. dollar.


Notional Amount

Currency Management

The U.S. dollar amount of the underlying assets.

O


Obligor

Currency Management

The obligor is the beneficiary of the funds raised by the bond issuance and is responsible for paying off the bonds.


Office

Credit Enhancement

May include multi-tenanted buildings in both central business district and suburban locations.  Types of use in office buildings may include commercial banks, financial buildings that serve as office space, owner-occupied space including corporate headquarters and branch offices. Others, such as government administration buildings, medical offices and office R&D which is used primarily for office, may also be included.


Oil and Gas

Real Estate

See natural resources.


Open End Diversified Core Equity Index (ODCE)

(“Odyssey”) Open End Diversified Core Equity Index – A capitalization– weighted return index consisting of infinite life vehicles with multiple investors and the ability to enter and exit on a periodic basis. Funds maintain low leverage; equity ownership in U.S. stabilized office, retail, industrial, and multi– family and hotel properties.


Opportunistic

Private Equity

A phrase characterizing an investment in underperforming and/or undermanaged assets typically purchased from distressed sellers, utilizing high levels of leverage with the expectation of near-term increases in cash flow and value.


Option

Innovation, Infrastructure, Real Estate

A financial instrument that gives one party the right, but not the obligation, to buy or sell an underlying asset from or to another party at a fixed price over a specific period of time.


Organization for Economic Co-operation and Development (OECD)

An organization that acts as a meeting ground for thirty four (34) countries (including the U.S. and Canada) which are advocates of the free market system and promotes policies that will improve the economic and social well– being of people around the world. The OECD provides a forum in which governments can work together to understand what drives economic, social and environmental change.


Other Unequal Voting Rights

Global Equity

Unequal voting rights provisions limit the voting rights of certain types of shareholders or grant special rights to others. For example, time-phased voting gives shareholders who have owned their stock for a certain length of time (such as four years) more votes per share than more recent purchasers; substantial shareholder provisions reduce or cap the voting power of a large shareholder once a certain ownership threshold, such as 10 or 20 percent, has been reached.


Over-The-Counter-Market (OTC)

The trading of commodities, contracts or other instruments directly between two parties off of a regulated exchange.

P


P&I

Pensions and Investments Magazine – the major media source covering pensions across the U.S.


Pacific Pension Institute (PPI)

An educational non-profit that focuses on the pacific rim investments.


Par Value

Corporate Governance

The underlying stated value of a bond.  The par value serves as the basis for calculating coupon payments and settlement details.


Participants

Fixed Income

Three major participants in the private equity market are investors (suppliers of capital), issuers (users of capital) and specialized intermediaries.  These three participants are further defined below:

INVESTORS: Includes a variety of groups such as public and corporate pension funds, endowments, and foundations, bank holding companies, insurance companies, and wealthy families.  Currently, public and corporate pension plans are the largest source of private equity.

ISSUERS: Includes thousands of start-up businesses that are established annually.  In addition, some estimates suggest there are approximately 120,000 private companies in the United States with revenues greater than $10 million, representing a market far greater than the 10,000 to 15,000 publicly traded companies.

SPECIALIZED INTERMEDIARIES: Invest as principals rather than as agents, and generally take the form of limited partnerships.  Institutional investors acquire limited partnership interests and become limited partners, while professional private equity managers serve as general partners.  Although some institutional investors directly acquire private equity securities, 80 percent of all private equity investments are managed via the limited partnership vehicle.  By investing through the limited partnership vehicle, rather than directly in issuing companies, investors achieve extensive diversification and employ the specialized talents of the general partners.  The general partner provides the labor-intensive responsibilities of evaluating, conducting due diligence, negotiating, monitoring, and adding value, and eventually liquidating the private equity investments.


Participation

Private Equity

An ownership interest in a letter of credit or liquidity facility issued by another financial institution.  The ownership interest in the letter of credit or liquidity facility is sold or purchased to decrease/increase direct risk exposure to an obligor.


Partnership Expenses

Credit Enhancement

Expenses borne by the partnership including costs associated with the organization of the partnership, the purchase, holding or sale of securities, and legal and auditing expenses.


Partnership Term

Private Equity

The term of the partnership is normally ten years, with the general partner reserving the right to terminate the partnership early or extend the term for a set period of time.  This is generally subject to the approval by the limited partners.


Passive Management

Private Equity

Passive managers utilize either a replication or optimization method to track a benchmark’s performance. With replication, every security in the portfolio is held in the exact proportion as the benchmark. Optimization seeks to mimic the risk and return characteristics of a benchmark by only holding a subset of the benchmark’s securities.


Percentile

Global Equity

A percentile is 1/100 of the whole.  As used here, it is the rank of a manager’s investment performance compared to a universe of its peers.  For example, if a manager ranks in the seventh percentile, then the manager’s performance is higher than 93 percent of the other managers in the universe.


Performance Objective

Global Equity

Refers to each individual external manager’s designated benchmark (example, Russell 1000) and their performance target (example, Russell 1000 + 1½ percent).


Poison Pills

Global Equity

Also known as shareholder rights plans because, in the event of a hostile takeover attempt, they give shareholders (except for the would-be acquirer) the right to buy stock in their own company or in the acquiring company at a deep discount, usually half price, if the bidder acquires a certain percentage (usually 15 or 20 percent) of the outstanding shares.

Shareholders consider pills one of the most potent anti-takeover measures, but companies say they simply force a would-be acquirer to negotiate with the board. If the board approves the deal, it can redeem the pill; if not, and the potential acquirer was to proceed anyway, the pill could be triggered. With other shareholders then able to buy shares at half price, the target company would become financially unattractive and the voting power of the potential acquirer would be diluted i.e., acquiring the company under those terms would be like swallowing a poison pill.


Pool Managers

Corporate Governance

Refers to investment managers who have been selected to take the place of funded managers that may be terminated.  The pool managers will correct any imbalance caused by the termination of a manager and quickly correct possible unintended bets or tilts.


Portfolio

Global Equity

A collection of stocks, bonds, or money market securities owned by an investor and segmented by a predefined method.


Portfolio Companies

Fixed Income

Portfolio companies are any of the companies in which the private equity partnerships have an investment.


Position

Private Equity

In Investments: The status of securities, futures, and options in an account – long or short.


Principal

Fixed Income

The major party in a transaction.


Principal Paydown

Securities Lending Program

The portion of a periodic payment that reduces the amount of the principal.


Principal Trade

Fixed Income

A trade in which the broker acts on his own behalf and buys or sells for a customer.


Principles for Responsible Investment (PRI)

Soft Dollar

An initiative and a set of aspirational and voluntary guidelines for investors wishing to address environmental, social, and corporate governance (ESG) issues. Over 650 companies have signed up to the principles.

The Principles for Responsible Investment were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and corporate governance issues to investment practices. The process was convened by the United Nations Secretary-General.      


Private Securities Litigation Reform Act of 1995 (PSLRA)

Corporate Governance

The federal law aimed at reducing the number of “meritless” lawsuits brought against corporations. In passing the act, Congress sought to encourage the appointment of institutional investors as lead plaintiffs in securities fraud class action suits.


Proactive Portfolio

Corporate Governance

A strategy interwoven in all asset classes within CalSTRS portfolio whereby a framework is provided for selecting investments in an opportunistic and disciplined manner when these investments are in (1) the emerging space, and/or (2) to capture innovative strategies (i.e., new market opportunities and/or new drivers of value creation due to changing demographics, etc.), and/or (3) investments consistent with the board’s Policy on California Investments. The Proactive Portfolio may take the form of a specific program or it can be managed by the individual portfolio managers in the normal course of business.


Property Management

Private Equity

The various functions that are performed at the property level in order to assure timely collection of rents, payment of expenses, and supervision of on-site activities.


Proprietary Research Arrangement

Infrastructure, Real Estate

Refers to an arrangement whereby the investment adviser directs a broker to effect Securities Transactions for Client accounts in exchange for which the Investment Adviser receives Research from, and/or access to, the “in-house” staff of the brokerage firms.


Prospectus

Soft Dollar

A prospectus is a document given to potential investors in connection with a public offering of securities. It is intended to provide potential investors with a written statement of all relevant information about the company — its history, operations, financial condition and key personnel. A prospectus is required by law; it provides information but not an endorsement.


Provided by a Broker

Corporate Governance

Refers to (1) in Proprietary Research Arrangements, research developed by the broker and (2) in Third-Party Research Arrangements, research for which the obligation to pay is between the broker and third-party research provider, not between the investment adviser and third-party research provider.


Proxy Contest

Soft Dollar

A solicitation by a dissident shareholder or group for seats on a company’s board. (Shareholder campaigns in opposition to certain management proposals, such as a merger or a dilutive stock option plan, are also sometimes referred to as proxy contests, but generally the definition refers to a fight for seats on the board.)


Prudent Manner

Corporate Governance

A fiduciary is required to act in a manner appropriate in keeping with the investment standard, in the best interest and for the sole benefit of CalSTRS’ participants and beneficiaries.


Public Company Accounting Oversight Board (PCAOB)

Currency Management

The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports. The PCAOB also oversees the audits of broker- dealer compliance reports under federal securities laws.


Public Private Partnerships (PPP)

A government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies. These schemes are sometimes referred to as PPP, P3 or P3.

Q


Quality Ranges

Corporate Governance

Guidelines for the percentage of market value of a particular credit rating within a portfolio.


Quantitative Analysis

Fixed Income

Applies mathematical and statistical techniques to a single market sector (i.e., equity or debt) or to asset allocation.

R


Rate of Return

Fixed Income

The total income received over a period of time, including interest income, accretion of discount, amortization of premium, and change of market value; usually expressed as a percentage or in decimal format.


Ratio

Fixed Income

Represents the number of commission dollars to cash (hard dollars) required to purchase services.

Examples: if a service cost $100 in cash, at a ratio of 1.8:1, the commission (soft dollar) cost would be $180 or 1.8 x 100 = $180.


Real Estate Operation Company (REOC)

The corporation that manages real estate assets.


Real Rate of Return

Soft Dollar

Yield to the investor after adjusting for inflation (typically determined by the Consumer Price Index).


Rebalancing

Infrastructure, Real Estate

Adjusting the actual portfolio to the current strategic asset allocation because of price changes in portfolio holdings. Also: revisions to an investor’s target asset class weights because of changes in the investor’s investment objectives or constraints, or because of changes in capital market expectation, or to mean tactical asset allocation


Rebate

Global Equity

The interest rate that the lender pays the borrower on the cash collateral.


Reimbursement Agreement

Securities Lending Program

An agreement between the credit enhancer and underlying obligor setting forth the terms and conditions of the letter of credit and the responsibilities of the obligor.


Repricing or replacing of options

Credit Enhancement

The practice of repricing outstanding underwater options at new, lower exercise prices, or canceling the underwater options and replacing them with new, lower-priced options. Companies say adjustment of out-of-the-money options is necessary to retain key employees when the stock price falls, but many shareholders feel it is unfair to cushion losses for managers when the shareholders are losing money on the stock. Shareholder approval is not required for repricing, although as a result of shareholder efforts, some companies have agreed not to reprice or replace options without it.


Request for Proposal (RFP)

Corporate Governance

Refers to a search and selection process for hiring external money managers.  The process provides minimum qualifications, description of duties, and a detailed questionnaire to be completed by the proposer.  Selection is based on the firm’s investment process, personnel, performance and fees.


Research

Global Equity

Refers to services and/or products provided by a broker, the primary content of which must, if used by the investment adviser, directly assist the investment adviser in its investment decision-making process and not in the management of the investment firm.


Restructuring/Recovery Investments

Soft Dollar

Recovery investments involve the investment of capital in companies experiencing anywhere from relatively minor, to extreme difficulties, to companies involved in bankruptcy proceedings.  Recovery investing takes advantage of discounted securities of unhealthy, bankrupt (or near); under-performing, and/or under-capitalized companies and either ride or steer them back to recovery.  To accomplish this goal, the various funds available use a variety of strategies.  The strategies vary by the activity level and/or degree of control required by the acquirers, types of securities utilized, and the relative health of the target companies sought (from bankrupt to nearly healthy).  Also, like LBO and venture capital managers, managers of ailing company funds each have a particular target company size preference and some have industry or sector preferences.

Distressed debt investments are a form of recovery investing that focus on the debt of a distressed company. Distressed debt investing is defined as the investment in debt securities (generally senior-secured debt) of troubled or bankrupt companies. 


Retail

Private Equity

May include neighborhood, community, regional, super-regional, fashion/specialty, power, theme/festival, outlet and single tenant centers in which tenants sell goods and services.


Risk Averse

Real Estate

Investing conservatively, or avoiding risk unless adequately compensated for it.


Risk Management

Innovation

The process of identifying the level of risk an entity wants, measuring the level of risk the entity currently has, taking actions that bring the actual level of risk to the desired level of risk, and monitoring the new actual level of risk so that it continues to be aligned with the desired level of risk.


Risk-Adjusted Return

Securities Lending Program

Measure of how much risk is involved to produce the investment return.


Russell 1000 Index (R1)

The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92 percent of the U.S. market.


Russell 2000 Index (R2)

The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index representing approximately 10 percent of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership.


Russell 3000 Index (R3)

The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98 percent of the investable U.S. equity market.

S


Safe Harbor Transaction

Global Equity

A transaction where CalSTRS extends credit enhancement to an employing agency.  In such case, CalSTRS may have no more than a 25 percent involvement in the credit enhancement transaction at the time of issuance.  In addition, persons affiliated with the system, employing agencies, and other California public sector retirement systems would not be permitted collectively to account for more than 50 percent of such credit enhancement transaction.


Sarbanes Oxley (SOX)

The Sarbanes–Oxley Act of 2002 (often shortened to SOX) is legislation enacted in response to the Enron and WorldCom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise. The act is administered by the Securities and Exchange Commission (SEC), which sets deadlines for compliance and publishes rules on requirements. The legislation not only affects the financial side of corporations, but also affects the IT departments whose job it is to store a corporation’s electronic records.


Secondary Limited Partnership Interests

Credit Enhancement

Privately negotiated purchase of limited partnership interests or investment company interest.  Such investments involve the purchase of a pro-rata ownership of non-registered securities, which are currently in, or will be a future purchase of, the partnership portfolio.


Section 28(E) Safe Harbor

Private Equity

Refers to the “safe harbor” set forth in Section 28© of the U.S. Securities Exchange Act of 1934, which provides that an investment adviser that has investment discretion over a client account is not in breach of its fiduciary duty when paying more than the lowest commission rate available if it determines in good faith that the rate paid is commensurate with the value of brokerage and research services provided by the broker.


Sector

Global Equity, Soft Dollar

An industry or market sharing common characteristics. Investors use sectors to place stocks and other investments into categories like technology, health care, energy, utilities and telecommunications. Each sector has unique characteristics and a different risk profile


Securities Lending

Global Equity

An agreement between a lender and a borrower to transfer ownership of a security temporarily in order to earn additional income.  The lender retains ownership rights of the security and is entitled to any distributions that occur with respect to that security during the life of the loan, such as coupon and dividend payments.  The borrower backs the agreement by delivering collateral to the lender, either in the form of cash, which is currently the dominant form of collateral in securities lending transactions, or other liquid securities, in an amount that exceeds the market value of the securities borrowed.


Securities Litigation Uniform Standards Act of 1998

Securities Lending Program

Federal law requiring that securities class action suits against nationally traded companies be brought only in federal courts, and setting standards for bringing the suits. It was intended to prevent the shifting of securities suits from federal to state courts, frustrating the intent of Congress in passing the PSLRA.


Securities Transactions

Corporate Governance

Refers to any transactions involving a Broker, whether conducted on an agency basis or principal basis.


Securitized Assets

Soft Dollar

Debt investments that are collateralized by assets.  Examples include:  Mortgage Backed Securities, Commercial Mortgage Backed Securities and Asset Backed Securities.  


SEK

Swedish Krona


Settlement Date

Fixed Income

For each security transaction, a price is established based on the specifics of the security and the payment date.  The payment date, or when the security is exchanged for value, is called the settlement date.


SGD

Singapore Dollar


Shareholder approval of stock option plans

Fixed Income

One of the most contentious corporate governance issues in recent years. The New York Stock Exchange in 1998 changed its listing standard on the subject, allowing many option plans to be adopted without shareholder approval. After an outpouring of shareholder opposition, it also promised to adopt a dilution standard worked out by a task force of corporate representatives and institutional investors, but to date it has not done so.


Shareholder Service Fees

Corporate Governance

Fees paid to persons to respond to investor inquiries and provide investors with information about their investments.


Sharpe Ratio

Risk-adjusted measure to determine the reward per unit of risk.


Short Selling

Innovation, Global Equity

The practice of selling a security that a seller does not own.  Therefore, the seller must borrow the security in order to complete the transaction.


Short slate

Securities Lending Program

The nomination of one or a few directors by dissident shareholders, allowed by an SEC rule adopted in 1992 as part of its proxy rule reform. Under the rule, the shareholders can nominate one or more directors for a board and then indicate which management nominee(s) they will withhold their votes from to make room for the new candidate(s). The rule is intended to allow shareholders to replace one or more directors without seeking control of the company.


Small Cap

Corporate Governance

Stocks of smaller companies whose market value is below a designated minimum, such as $1 billion.


Soft Dollar Arrangement

Global Equity

Refers to an arrangement whereby the investment adviser directs transactions to a broker, in exchange for which the broker provides brokerage and research services to the investment adviser.  Soft dollar arrangements include proprietary and third-party research arrangements, but do not include client-directed brokerage arrangements. Soft dollar arrangements are sometimes referred to herein as investment adviser-directed brokerage arrangements.


Soft Dollars

Soft Dollar

Refers to the use of brokerage commissions to pay for research and other services that are investment related.


Special Equity

Global Equity

See all non-venture capital related investment strategies, such as Leveraged Buyouts, Acquisitions, Special Situations, Mezzanine Investments, Subordinated Debt and Natural Resources.


Special Situation Fund

Private Equity

Special Situation funds represent a “catch-all” for non-traditional investments that do not fit either Special Equity or Special Funds.  These will include minority, but often control positions in public companies, “white knight” efforts to support management’s to achieve long-term objectives, turnarounds and bankruptcy reorganizations, and other special situation profit opportunities.  It is not the intention to invest in “unfriendly” business take-overs.


Split-Rated

Private Equity

The credit ratings of corporate and other securities are made by independent services such as Moody’s, Standard & Poor’s and Fitch.  When a security receives ratings that are different among the rating services, the term “split- rated” is used to signify this difference in relative credit ratings.


Spread Income

Fixed Income

Difference between the yield on the investment of the cash and the interest (rebate) paid to the borrower.


Standard & Poor’s 500 (S&P 500)

Global Equity

A market-value weighted index that tracks the performance of 500 widely held large-cap stocks in the industrial, transportation, utility, and financial sectors. It is often looked to by experienced investors as a measure of changes in the broad market.


Standby Bond Purchase Agreement

Global Equity

A form of liquidity facility or enhancement.


Standby Letter of Credit

Credit Enhancement

A letter of credit that is drawn upon only if there are insufficient funds from other sources.


State Street Bank (SSB)

Credit Enhancement

CalSTRS’ master custodian for investment activity.


Strategic asset allocation

IT/Operations

A portfolio strategy that involves periodically rebalancing the portfolio in order to maintain a long-term goal for asset allocation.


Structured Note

Global Equity

A security with one or more special features, such as making payments based on an underlying index.


Style Drift

Global Equity

The divergence of a portfolio from its stated investment style or objective.


Submitting shareholder proposals

Global Equity

Resolutions submitted by shareholders for inclusion in company proxy materials to be put to a shareholder vote.

Most shareholder proposals are precatory-i.e., advisory. They are merely recommendations to the board, and are not binding, although many shareholders take the position that the board should implement the proposals if a majority of the shares vote in favor of the proposal. Since most boards do not do so, shareholders in recent years have begun filing binding proposals, which, if passed, require the board to implement the proposal-by amending the company’s bylaws to eliminate the classified board or by redeeming the poison pill, for example.

Companies have fought the proposals, saying shareholders do not have legal authority to override board decisions, but the issue has not yet been decided in the courts. The Oklahoma Supreme Court upheld the legality of a binding poison pill proposal submitted to an Oklahoma company, but the issue has yet to be tested in Delaware or other states where the vast majority of companies are incorporated.


Super Majority voting requirements

Corporate Governance

Some companies require the approval of two-thirds, three-fourths or even 80 percent of the outstanding shares to pass, repeal or amend a charter or bylaw provision or approve a merger. Many shareholders believe a simple majority vote should be sufficient to amend company bylaws or approve other corporate actions.


Swap Agreement

Corporate Governance

An arrangement between two parties to exchange one security for another, to change the mix of a portfolio or the maturities of the bonds it includes, or to alter another aspect of a portfolio or financial arrangement.

T


Tactical Asset Allocation

Global Equity

An active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors.


Technical Analysis

Global Equity

A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume.  Technical analysts do not attempt to measure a security’s intrinsic value.  Technical analysts often use charts to identify patterns that can suggest future activity. Technical analysts believe that historical performances of the market are indications of future performance.


Technical Environment

Currency Management

Evaluates the environment through historical market activity, such as prices and volume, and uses charts to identify patterns that may suggest future activity and/or trends.


The Financial Times Stock Index (FTSE)

The main UK stock index and a major global equity index provider.


Third-Party Research Arrangement

Fixed Income

Refers to an arrangement whereby the investment adviser directs a broker to effect securities transactions for client accounts in exchange for which the investment adviser receives research provided by the broker, which has been generated by an entity other than the executing broker.


Ticker (Stock Symbol)

Soft Dollar

A unique four- or five-letter symbol assigned to a NASDAQ security that is used for identifying it on stock tickers, in newspapers, on on-line services, and in automated information retrieval systems. If a fifth letter appears, it identifies the issue as other than a single issue of common or capital stock.


Timberland/Farmland

Global Equity

See natural resources.


Treasury Inflation Protected Securities (TIPS)

Treasury Inflation Protected Securities – aka Linkers. These are U.S. Treasury issued inflation linked notes.


Total Return

Private Equity

The sum of the income and appreciation returns.


Tracking Error

Infrastructure, Real Estate

The standard deviation of the portfolio’s rate of return from that of the target index or performance benchmark.


Traditional Asset Classes

Fixed Income, Global Equity

Stocks, bonds, real estate, private equity, and cash are fundamental components of an investment portfolio.


Traditional Property Type

Innovation

Conventional property types such as office, multi-family residential, industrial, and retail and hotel real estate; which are included within the NCREIF Index.


Transaction Fee Offsets

Real Estate

Transaction fee offsets are designed to eliminate misplaced management fees and align the actions of the general partner whose aim is to generate high capital gains, and not to earn additional fees for the firm.  The general provision is that the earned fee will reduce the limited partners’ management fees.


Trustee

Private Equity

A financial institution with fiduciary responsibilities to bondholders (investors) to make principal and interest payments as well as administer all other aspects of the bond indenture.


Turnover

Credit Enhancement

In reference to securities, it is the percentage that the portfolio is traded on an annual basis.  It is calculated by dividing the smaller of purchases or sells by the total value of the portfolio.

U


Underwater Options

Global Equity

Options with exercise prices above the stock’s current market value-i.e., of no immediate value to the holder.


United Nations Principles of Responsible Investment (UNPRI)

UNPRI – United Nations Principles of Responsible Investment


United States Treasury Securities

Corporate Governance

Debt issues of the U.S. Government, such as Treasury bills, notes and bonds.


Urban and Rural Program

Global Equity

The Urban and Rural program was established by the Investment Committee in 2001 to seek private equity investment in the inner city and under served portions of California and the U.S.


USD/CHF

U.S. Dollar/Swiss Franc


USD/JPY

U.S. Dollar/Japanese Yen

V


Value Date

Global Equity

Term used in relation to foreign currency to indicate the date when transferred money becomes available to the depositor.


Value Style

Currency Management

The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. Typically, value investors select stocks with lower- than-average price-to-book or price-to-earnings ratios and/or high dividend yields


Value-Added

Global Equity

A phrase commonly used by investment managers to describe a management approach to a property with the connotation that their skills will add value, which otherwise would not be realized.


Venture Capital

Infrastructure, Real Estate

Venture capital refers to investments in young, emerging growth companies in different stages of development.  The stages of venture capital investing include the following:

SEED STAGE: An entrepreneur seeking capital to conduct research or finish a business plan.

EARLY STAGE: A company developing products and seeking capital to commence manufacturing. 

LATE STAGE: A profitable or near-profitable high growth company seeking further expansion capital. 

The common theme underlying all venture capital investments is the high-growth nature of the industries in which the investee companies operate and the active role played by the investor to identify additional management expertise and provide general business advice.


Venture Economics

Private Equity

Venture Economics is the leading compiler and publisher of private equity investment data.  Accordingly, Venture Economics compiles data from over 588 venture capital limited partnerships formed from 1969 to 2000, and over 215 buyout and mezzanine funds formed between 1976 and 2000.  With this data, Venture Economics computes the internal rates of returns (IRRs) on a vintage year basis including pooled, upper, median, and lower quartile returns for each sub-category.

UPPER QUARTILE: The point at which 25 percent of all returns in a group are greater and 75 percent are lower.

MEDIAN QUARTILE: The mid-point of all returns, with half the sample less than or equal to the median, and half of the sample greater than or equal to the median.

LOWER QUARTILE: The point at which 75 percent of all returns in a group are greater and 25 percent are lower.

POOLED RETURNS: This is a composite of all median and upper quartile returns.


Vintage Year

Private Equity

The year of fund formation and its first takedown of capital.  By placing a fund into a particular vintage year, the limited partner can compare the performance of a given fund with all other similar type funds formed in that particular vintage year.  In addition, that vintage year return can then be compared to an industry benchmark which is provided by Venture Economics.


Volatility

Private Equity

Measure of the dispersion of returns for a security or index.

W


Warrant

Innovation

A security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame.


Whole Loans

Global Equity

A secondary mortgage market term which refers to an investment in an original mortgage loan, versus a loan which participates in a secured pass-through security.


Withholding votes from directors

Fixed Income

Sometimes referred to as voting against the board. Unless there is a proxy contest, with competing candidates for the board, there effectively is no such thing as voting against the board, since the official board nominees will always win no matter how small a vote they get. Some shareholders withhold their votes from the entire board (or the class standing for election) to indicate general dissatisfaction with company performance; others withhold support only from specific directors, for such reasons as poor attendance, conflicts of interest, failure to own company stock, or serving on a compensation committee that awarded excessive compensation packages. Some vote against boards that do not take actions recommended in shareholder proposals that get majority.

Z


ZAR

South African Rand