CalSTRS Posts 13.2 Percent Investment Returns for the Fiscal Year

News release

 Sacramento, CA  – The California State Teachers’ Retirement System posted a 13.2 percent return on investments, adding $13.5 billion to the fund ending the year with $142.7 billion in assets as of June 30, 2006. Real estate, alternative investments and international stocks were the engines of growth that led to the fourth straight year of positive returns for the system.

“These exceptional returns illustrate the impact that a team of investment professionals has on portfolio management,” said Jack Ehnes, CalSTRS chief executive officer. “Individual investors are still struggling to recover from the downturn market in 2000; our fund had fully rebounded by mid-2005 and continues to grow. While the national public pension debate continues, the value of a professionally managed defined benefit pension is indisputable.”

The positive year-end returns are attributed to an increase in active management in both U.S. and international stocks. In the real estate portfolio, tactical moves within the portfolio and the strength of the U.S. market were the contributing factors for the returns. Prudent selection within the alternative investment asset class was cited by the investment staff as the leading factor that added value in 2005-2006.

“We significantly outperformed our policy benchmark and beat the U.S. market by a wide margin,” said Christopher J. Ailman, CalSTRS chief investment officer. “Our goal this year was to squeeze an 8 percent return out of a 6 percent market. We generated over 13 percent from a stock market return of 9.5 percent. The decisions of the board, investment staff and managers added $3.148 billion of extra return. In short, we hit a grand slam.”

Four of the fund’s five asset categories posted positive returns and beat their benchmarks for the one-year period ending June 30, 2006, with real estate, alternative investments and international stocks generating double digit returns.

  • The real estate portfolio posted a 35.73 percent return and continues to outperform its benchmark, the NCREIF index, by 15.63 percent.
  • Assets in alternative investments posted a return of 32.03 percent, beating its custom benchmark by 23.3 percent.
  • International stocks posted a 27 percent return, narrowly missing its benchmark the MSCI All Country Free (excluding U.S.) by .97 percent.
  • The U.S. stock portfolio posted a 9.5 percent return. This figure beat the overall market return, which was 9.4 percent, as measured by the CalSTRS benchmark, the Russell 3000 ex-Tobacco Index.
  • Continuing a four-year run of out performance, the fixed income portfolio exceeded its benchmark, the Lehman Aggregate ex: Tobacco, by .58 percent.

The fund’s performance in 2006 again exceeded the 8 percent average annual return necessary to meet projected benefit obligations to the system’s current 776,000 members and beneficiaries.

The $142.7 billion portfolio ended 2006 with 42.3 percent in U.S. stocks, 22.5 percent in international stocks, 22.3 percent in fixed income, 7 percent in real estate, 5.7 percent in alternative investments and .2 percent in cash.

The California State Teachers’ Retirement System is the second-largest public pension fund in the United States. It provides retirement, disability and survivor benefits to California’s 776,000 public school educators from kindergarten through community college.