CalSTRS Calendar Year-End Investment Returns Post Double-Digit Gains
Portfolio value ends 2010 at its highest point for the year

News release

 WEST SACRAMENTO, CA  – Investment portfolio returns for the California State Teachers’ Retirement System (CalSTRS) ended 2010 posting a 12.7-percent return and boosting market values to levels not seen since October 2008.

Since March 2009, when global financial markets plunged into a historic worldwide economic recession, the CalSTRS investment portfolio has rebounded by more than $34.8 billion to $146.4 billion.

“This is very encouraging news but the historic market declines of the 2008-09 financial crisis showed us that CalSTRS cannot solely invest its way to healthy long-term funding,” said CalSTRS Chief Executive Officer Jack Ehnes. “With that in mind, we continue to work with our stakeholders to help the Administration and Legislature develop a strategy that will place CalSTRS on sound financial footings in order to secure the retirement future of our educators.”

Investment returns and contributions comprise the income to the CalSTRS system. CalSTRS cannot set its own contribution rates and requires action by the Legislature and Governor to change them.

The latest CalSTRS valuation, a snapshot of the fund’s health, showed the system’s funding level dipping from 87 percent as of June 30, 2008 to 78 percent as of June 30, 2009. However, investment returns still accounted for the majority of the $8.6 billion of benefits paid out in 2008-09. Solid investment returns, such as those seen at year’s end, are therefore a key component of the CalSTRS funding picture.

The total portfolio topped its benchmark by .24 percent. The U.S. equity portfolio’s 17.2 percent return at year’s end led the resurgence, followed by a 16.9 percent return in the private equity portfolio. Non-U.S. equity holdings returned 12.8 percent. All three asset classes beat their benchmarks, as did the fixed income portfolio, with an 8.0 percent return. Real estate holdings posted a return of .01 percent.

“While we’ve set the groundwork for a slow but steady recovery, we still have to work through the losses we took in 2008,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “Nonetheless, we’re beginning to see the first green shoots of a rebound from the financial crisis.”

The CalSTRS portfolio beat its policy benchmark for the first time in two years. The results are in large part due to the Teachers’ Retirement Board taking the necessary steps to position the portfolio for growth over the past 18 months, according to Ailman.

The actions taken to position the CalSTRS investment portfolio for growth include:

  • Expanding target asset ranges to avoid having to sell at a loss.
  • Temporarily shifting 5 percent of the portfolio from global equities to fixed income, real estate and private equity to take advantage of the distressed market.
  • Permanently shifting 5 percent of the portfolio from global equities to create a new absolute return asset class for inflation-protection.
  • Adopting a new asset allocation mix to further diversify the portfolio and reduce its stake in the global stock market.
  • Launching the Innovations and Risk unit to explore new investments such as a macro global hedge fund strategy, commodities and microfinance.
  • Examining risk-based asset allocation strategies for the CalSTRS portfolio

Ailman cautioned that the three year return is still negative 3.2 percent because losses from the financial crisis are still working their way through the three-year rolling average. However, the strength of investment returns over the past fiscal year and the first half of this fiscal year will help CalSTRS build a turnaround, he added.

The California State Teachers’ Retirement System is the second largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California’s 852,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.