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Mercer review: CalSTRS investment-services team performs well but needs more operational risk and technology capacity
Summary
A Mercer Sentinel review found Investment Services has strong controls and processes but is at capacity given growing private-market complexity and recommended bolstering operational-risk governance, specialized private-markets support and technology/analytics investment.
Mercer Sentinel, a specialist unit of Mercer, presented the results of a diagnostic review of CalSTRS’ Investment Services division. The consultant said Investment Services executes high-volume, complex operational work well but that growing private-market activity, collaborative structures and novel investment vehicles require expanded oversight, risk management and technology.
Key strengths included “strong internal controls, governance and processes,” a culture of ethics and “agility” among staff. Mercer identified enhancement priorities: add management and oversight positions, expand operational risk safeguards (particularly for private asset structures), and invest in technology and analytics to support more automated reporting and faster decision making.
April Wilcox, director of Investment Services, told the committee the division settles roughly 15,000 trades per month and reconciles positions across dozens of internally managed portfolios daily. Wilcox and Mercer recommended developing a multiyear plan to sequence hires, risk-function expansion and technology upgrades; Scott Chan said staff would return with a multiyear implementation plan and cost estimates at the July off-site.
