CalSTRS Investment Returns Reflect Global Markets in 2011-12
Volatility and strong headwinds flatten performance but downturn's wake has passed

News release Ricardo Duran Christopher J. Ailman

WEST SACRAMENTO, CA – Flat investment returns at CalSTRS, the California State Teachers’ Retirement System, reflected the highly volatile and challenging global markets of the 2011-12 fiscal year.

The 1.8-percent return rate is well below the actuarial assumed rate of 7.5 percent and 150 basis points below the policy benchmark, the fund’s performance measuring stick.The CalSTRS Investment Portfolio’s market value for the fiscal year ending June 30 was $150.6 billion.

However, CalSTRS three-year return remains a solid 12.0 percent, given the previous two fiscal years of robust performance. In the 2010-11 fiscal year, CalSTRS posted a 23.1 percent investment return, preceded by a fiscal year 2009-10 return of 12.2 percent. CalSTRS has generated a 7.5 percent return over 20 years.

“A year like this one underscores the wisdom of viewing CalSTRS’ performance in the long term and refraining from using one given year’s performance as the gauge for how well the fund is doing,” said CalSTRS Chief Executive Officer Jack Ehnes. “It also emphasizes the fact that investment returns alone cannot place CalSTRS on a solid financial footing. It’s clear that the Legislature and Governor must implement a long-term funding plan that includes gradual, predictable and fair contribution increases for all parties involved.”

Unlike most public pension plans, CalSTRS cannot set its own contribution rates and requires the Legislature and Governor to enact any changes. CalSTRS has been calling for a review of contribution rates since 2006 and is working with its stakeholders to help the Legislature and Governor develop such a plan. Investment earnings, while important, are just part of the overall financial picture for CalSTRS, whose current returns reflect the global nature of the investment portfolio.

“This fiscal year has presented a very difficult market for long-term investors like CalSTRS, with wild fluctuations amid ongoing instability in Europe, slowing growth in China and India, a U.S. credit rating downgrade and a sluggish economy,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “The coming year presents us with many of the past year’s challenges. Short-term speculators risk day trades to time the market but large institutional investors are challenged to generate sustainable returns in such an environment.”

Fiscal Year 2011-12 Returns by Asset Class – Numerals in parentheses denote negative values.

Asset Class FY 11-12 Return Return Benchmark Benchmark Return Over Performance (Under Performance)
Global Equity (3.1%) CalSTRS Global Equity Benchmark (3.0%) (0.1%)
Private Equity 5.9% Russell 3000 Index ex tobacco plus 300 basis points (lagged a quarter) 10.0% (4.1%)
Real Estate 9.2% NCREIF Property Index 13.4% (4.2%)
Inflation Sensitive 4.9% Barclays Global Inflation Linked 4.7% 0.2%
Fixed Income 7.3% CalSTRS Fixed Income Benchmark 7.5% (0.2%)
Total Fund Performance 1.8% Policy Benchmark 3.3% (1.5%)

On a longer-term portfolio-wide basis, CalSTRS returns were:

  • 12.0 percent over three years
  • 0.3 percent over five years
  • 6.5 percent over 10 years
  • 7.5 percent over 20 years

As of June 30, 2012, the CalSTRS investment portfolio holdings were 49.8 percent in U.S. and non-U.S. stocks, or global equity; 18.3 percent in fixed income; 15.0 percent in private equity; 14.5 percent in real estate; 0.6 percent in inflation sensitive and overlay assets; and 1.8 percent in cash.

The California State Teachers’ Retirement System is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans, as well as disability and survivor benefits. CalSTRS serves California’s 856,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.