CalSTRS Posts Double-digit Gains for the 2004-05 Fiscal Year
Sacramento, CA – The California State Teachers’ Retirement System posted double-digit investment returns for its fiscal year. CalSTRS announced its third straight year of positive performance, with an all-time high total assets of $128.9 billion on June 30, 2005, and an 11.09 percent return on investments.
“Our returns are obviously great news for our members and demonstrate in these times of national pension debate the extraordinary value created by professional investment management in public pension defined benefit plans,” said Jack Ehnes, CalSTRS Chief Executive Officer. “The ability to manage large assets, through an expert investment staff, in a highly cost efficient manner with broad diversification and managed risk creates results like these that surpass market benchmarks and produces in the end the financial security everyone deserves.”
This year’s news shows the portfolio has fully recovered from the earlier market downturn. CalSTRS’ three-year return, at 10.5 percent, is half of a percent higher than its policy benchmark for the same period.
“In a year where the U.S. stock market climbed 7.8 percent, our portfolio achieved an 11.1 percent return at a lower level of risk than the U.S. stock market. This highlights the value of a global, diversified portfolio and is a credit to our outstanding staff,” said Christopher J. Ailman, CalSTRS Chief Investment Officer. “Beating our policy benchmark over the last three years means our investment staff and managers have added an extra $600 million per year to our bottom line. Our diligent process and discipline has paid us back with almost two billion dollars.”
Each of the fund’s five asset classes posted positive returns for the one-year period ending June 30, 2005. Each asset class, except one, Non-U.S. Equity, beat their respective policy benchmarks.
- Domestic Equity: The U.S. Equity portfolio posted an 8.3 percent return. This figure beats the overall market return, 7.8 percent, as measured by the CalSTRS benchmark, the Russell 3000 ex tobacco Index. According to Ailman, this year’s excellent return was the result of CalSTRS’ active managers’ stellar performance.
- Non-U.S. Equity: Non-U.S. Equity posted a 16.5 percent return, down only three-tenths of a percent from its benchmark. Ailman credited the portfolio’s return to the strength of the non-U.S. markets, particularly the United Kingdom and Europe. He noted the investment staff overweighted its investment in non-U.S. stocks for the first nine months of the year when most of the double-digit return was generated.
- Fixed Income: At 7.14 percent, the Fixed Income portfolio edged its benchmark slightly, with the benchmark coming in at 7.08 percent. “We fared well, during a very challenging year in which the Federal Reserve raised interest rates eight times,” said Michelle Cunningham, CalSTRS Director of Fixed Income.
- Alternative Investments: Alternative investments posted a return of 24.9 percent, more than 18 percent above its custom benchmark. “Our disciplined selection of general partners and consistent, diligent process are the keys to navigate the challenges of the private equity marketplace,” said Réal Desrochers CalSTRS Director of Alternative Investments.
- Real Estate: Institutional real estate benefited from the same market as residential housing and rose 18.4 percent, besting its benchmark of 15.5 percent. The CalSTRS Real Estate portfolio has generated a double-digit return over the last 1, 3, and 5 years. “This is due to a portfolio with a high lease income and tactical moves within the portfolio,” said Mike DiRé, CalSTRS Director of Real Estate.
CalSTRS ended the fiscal year with 43 percent in U.S. stocks, 21.1 percent in non-U.S. stocks, 24.5 percent in fixed income, 5.6 percent in real estate, 4.8 percent in alternative investments and 0.9 percent in cash (does not total 100 percent due to rounding).
CalSTRS is the third-largest public pension fund in the United States. It provides retirement, disability and survivor benefits to California’s public school teachers from kindergarten through community college, serving more than 755,000 members and their families.