May You Live in Interesting Times
By Christopher J. Ailman, CalSTRS Chief Investment Officer
This old saying, may you live in interesting times, of uncertain origin, is both a blessing and a curse.
Regardless of how the saying began, we are living in very interesting times, both on Main Street, U.S.A., and Wall Street. As managers of a mega-billion dollar investment portfolio, this period brings us challenges and also opportunities. The key to success is keeping a long-term focus and discriminating between the two.
We may not appreciate difficult economic periods; however, like nature, periods of expansion are balanced with periods of weakness. These economic periods weed out the excesses of the financial markets. Unfortunately, that process may hurt people, companies and communities, so this analogy is not intended to lighten the effect.
The good news is that CalSTRS avoided the problem of sub-prime loans and securities. Our concern is we are not immune to the downturn in the stock market, here in the U.S. and around the world. The best defense against a stock market downturn is diversification — spreading our eggs into several baskets.
Thanks to our broad global diversification, the investment portfolio has weathered these difficult times very well. At the end of 2007, the CalSTRS investment portfolio ranked in the top 10 percent of all public pension funds in the U.S. That’s not just a one-year fluke. CalSTRS’ investment returns also rank in the top 10 percent of public pension funds over three, five and seven years.
Sustained performance over long periods is our goal. The hard work of the Investment Committee and a world-class investment staff does bring results.
It’s important to always keep in mind that the results of the investment portfolio do not change your retirement benefit. Your benefit is based on a formula of service, salary and age.
Our primary goal is to help get the fund back to a 100 percent funded status. That will not be achieved in one year or even a series of double-digit years, and difficult economic conditions only serve to slow down our efforts. Yet to the extent these difficult times bring us unique opportunities, we may be able to find and build better investment returns for the future.
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