Content below the radar, no. 3 Calstrs exerts its influence.

CALL it Calpers' little sister.

While the nation's largest pension fund has garnered headlines for its increasingly vocal stance on corporate governance, the smaller California State Teachers' Retirement System has quietly pursued similar goals.

That puts the $116 billion pension plan, the third largest public fund in the nation, in an odd position.

"If it were not for Calpers, we would be the biggest thing since sliced bread," said Jack Ehnes, the fund's chief executive.

Indeed, the fund, more commonly known as Calstrs, works closely with Calpers--with whom it shares two board members--but it has made its own mark in promoting good corporate governance.

Two years ago, it was named the lead plaintiff in a group of consolidated federal lawsuits against Homestore.com Inc. And last year it released a white paper commissioned from executive compensation consultant Graef Crystal on "The Perfect Stock Option Plan."

"Compared to almost any other public pension fund, they are exceptionally diligent," said Nell Minow, editor of The Corporate Library, a watchdog group. "They just happen to live in the same city with the most active public fund in the country."

Started in 1913 as an independent pension fund for state teachers, Calstrs now serves 735,000 public school teachers and community college instructors, as well as some other ancillary employees.

(They pay 8 percent of their salary into the plan each year, matched 8.75 percent by employers. The state kicks in a little less than 2 percent from its general fund.)

For much of its history, Calstrs has been closely associated with Calpers, which until 20 years ago handled all its investing. That left the teachers' fund to focus on administering retiree, disability and survivor benefits. It still does not offer a health plan; many schools contract to Calpers.

A 1982 state law required the fund to actively manage its own investments as part of a long-term effort to better fund the plan, which for decades had been run on a pay-as-you-go basis.

Its investment arm was built over time, and today employs a staff of 785 who have managed the fund to a return of 8.75 percent for the last decade, virtually fully financing its pension obligations.

(Like Calpers, the portfolio is mostly in U.S. stocks, but also includes fixed income investments, overseas stocks, real estate and private equity.)

The fund announced last month that it had reached $116.7 billion in assets, topping its previous high, reached in September 2000, by $116 million. "We have exceeded the return assumptions," said Christopher Ailman, chief investment officer.

Even so, negative returns in 2001 and 2002 dropped the asset base to a low of $84 billion. The market rally that started in 2003 has buoyed its holdings, and the crash has sparked its more aggressive posture promoting corporate governance.

Where it once used only its proxy leverage--and like Calpers developed "focus lists" of under-performing companies to work with behind the scenes to improve performance--Calstrs now finds itself in court more frequently.

Besides being the lead plaintiff against Homestore.com, it filed suit in 2002 against Qwest Communications International Inc., and participated in suits against WorldCom Inc.

It also weighed in last year on the scandal created by the $140 million compensation package awarded former New York Stock Exchange Chairman Richard Grasso. Calstrs made its own recommendations for board reform.

"You don't quietly walk into Congress or quietly challenge the New York Stock Exchange," Ehnes said. "What is different now is that we are suddenly working in these very high profile public forums."

With state Treasurer Phil Angelides and Controller Steve Westly serving on both the Calpers and Calstrs boards (Calstrs has eight other board members), the two funds have sometimes coordinated their actions, such as when they jointly sued WorldCom.

Gary Lynes, a public school teacher who is also Calstrs' chairman, said that while the fund is sometimes willing to coordinate activities with Calpers, it prefers to stay under the radar.

"I would say right now their corporate governance strategy is a little bit more high profile than ours," said Lynes, "and my preference is we keep it that way."