CalSTRS Announces Investment Return for Fiscal Year 2015-16
Despite volatility in the equity markets, CalSTRS achieved 1.4 percent net return in total fund performance over past year. Long-term funding plan continues on track.
WEST SACRAMENTO, CALIF. – The California State Teachers’ Retirement System remains on track for full funding by the year 2046 after announcing today that it ended the 2015-16 fiscal year on June 30, 2016 with a 1.4 percent net return. The three-year net return is 7.8 percent, and over five years, 7.7 percent net.
The overall health and stability of the fund depends on maintaining adequate contributions and achieving long-term investment goals. The CalSTRS funding plan, which was put in place in June 2014 with the passage of Assembly Bill 1469 (Bonta), remains on track to fully fund the system by 2046.
CalSTRS investment returns for the 2015-16 fiscal year came in at 1.4 percent net of fees. However, the three-and-five year performance for the defined benefit fund still surpass the 7.5 percent average return required to reach its funding goals over the next 30 years. Volatility in the equity markets and the recent June 23 U.K. referendum to exit the European Union, also known as Brexit, left CalSTRS’ $188.7 billion fund about where it started the fiscal year in July 2015.
“We expect the contribution rates enacted in AB 1469 and our long-term investment performance to keep us on course for full funding,” said CalSTRS Chief Executive Officer Jack Ehnes. “We review the fund’s progress every year through the valuation and make necessary adjustments along the way. Every five years we’ll report our progress to the Legislature, a transparency feature valuable for any such plan.”
The 2015-16 fiscal year’s investment portfolio performance marks the second consecutive year of returns below the actuarially assumed 7.5 percent. Nonetheless, CalSTRS reinforces that it is long-term performance which will make the most significant impact on the system’s funding, not short-term peaks and valleys.
CalSTRS continues to underscore and emphasize the long-term nature of pension funding as it pertains to investment performance and the need to look beyond the immediate impacts of any single year’s returns. And although meeting investment assumptions is very important to the overall funding picture, it is just one factor in keeping the plan on track. Factors such as member earnings and longevity also play important roles.
“Single-year performance and short-term shocks, such as Brexit, may catch headlines but the CalSTRS portfolio is designed for the long haul. We look at performance in terms of decades, not years,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “The decade of the 2010s has so far been a good performer, averaging 10.3 percent net.”
CalSTRS’ net returns reflect the following longer-term performance:
- 7.8 percent over three years
- 7.7 percent over five years
- 5.6 percent over 10 years
- 7.1 percent over 20 years
Fiscal Year 2015–16 Returns (Net of Fees) and Performance by Asset Class
|Asset Class||FY 15-16 Return||Benchmark||Benchmark Return||Over/Under Performance|
|Global Equity||-2.3%||CalSTRS Custom Global Equity Benchmark||-2.5%||0.2%|
|Private Equity*||2.9%||CalSTRS Custom Private Equity Benchmark||4.6%||-1.7%|
|Real Estate*||11.1%||CalSTRS Custom Real Estate Benchmark||12.6%||-1.5%|
|Inflation Sensitive||4.2%||CalSTRS Custom Inflation Sensitive Benchmark||4.5%||-0.3%|
|Absolute Return||0.2%||90 day Treasury Bills plus 100 basis points||1.2%||-1.0%|
|Fixed Income||5.7%||CalSTRS Custom Fixed Income Benchmark||5.8%||-0.1%|
|Total Fund Performance||1.4%||Custom Policy Benchmark||2.0%||-0.6%|
*Asset valuations and benchmark returns lag by one quarter.
As of June 30, 2016, the CalSTRS investment portfolio holdings were 54.8 percent in U.S. and non-U.S. stocks, or global equity; 16.9 percent in fixed income; 8.7 percent in private equity; 13.9 percent in real estate; 2.8 percent in inflation sensitive and absolute return assets; and 2.9 percent in cash.
The California State Teachers’ Retirement System, with a portfolio valued at $188.7 billion as of June 30, 2016, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s 896,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts.