CalSTRS Reports Healthy Investment Returns in 2012–13
Steady growth in the global equity markets fueled double-digit returns, but a long-term funding solution is still needed.

News release Michael Sicilia

WEST SACRAMENTO, CA – Steady growth in the global equity market fueled a 13.8 percent investment return at the California State Teachers’ Retirement System (CalSTRS) to close the 2012–13 fiscal year. However, CalSTRS still faces significant long-term funding challenges.

The picture for the fiscal year spanning July 1, 2012 to June 30, 2013 shows investment returns well above the actuarial assumed rate of 7.5 percent. On a long-term, portfolio-wide basis, CalSTRS returns follow:

  • 12.6 percent over three years
  • 3.7 percent over five years
  • 7.5 percent over 10 years
  • 7.5 percent over 20 years

The CalSTRS Investment Portfolio’s market value for the fiscal year ending June 30, 2013 was $165.8 billion.

“These numbers are very encouraging,” said CalSTRS Investment Committee Chairman Harry Keiley. “While we take great pride in the dedication and acumen of our investments staff at CalSTRS, the reality is that even good investment performance addresses only part of the long-term needs of the fund, which suffered a severe setback in the crash of 2008.”

Investment returns have been erratic over the past several years. The current performance followed a lackluster year with the fund returning only 1.8 percent in 2011–12, preceded by a 23.1 percent return in 2010–11. As of June 30, 2012, CalSTRS was 67 percent funded with an unfunded actuarial obligation—or funding gap—of $70 billion.

“This year reminds us that a pension fund measures its health over the long term and no single year can take us from underfunding to funding adequacy,” said CalSTRS Chief Executive Officer Jack Ehnes. “It also emphasizes the fact that investment returns are not the only factor needed to 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. Every day that goes by without a funding solution in place costs an additional $22 million dollars.”

Unlike most public pension plans, the CalSTRS Teachers’ Retirement Board lacks the authority to set the contribution rates; any changes require legislation enacted by the Legislature and Governor. CalSTRS has been calling for a review of contribution rates since 2006 and is working with the Legislature and its stakeholders to assist in the development of the funding plan, as recently provided in response to Senate Concurrent Resolution 105, and subsequently strongly recommended by the Legislative Analyst’s Office.

“Despite solid investment returns in three of the last four years, Standard & Poor’s recently cited the lack of a long-term funding plan as the reason to hold back on a ratings upgrade,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “If nothing’s done, there may be a downgrade in our future. That speaks volumes to the financial world in which we operate and draws a line in the sand to those who think we can invest our way to good financial health.”

Fiscal Year 2012–13 Returns by Asset Class

Asset Class FY 12-13 Return Benchmark Benchmark Return Over Performance
(Under Performance)
Global Equity 19.2 CalSTRS Global Equity Benchmark 19.1 0.1
Private Equity* 13.9 Russell 3000 Index ex tobacco plus 300 basis points 18.0 (4.1)
Real Estate* 14.1 NCREIF Property Index 10.5 3.6
Inflation Sensitive 2.2 Barclays Global Inflation Linked (1.1) 3.3
Fixed Income 0.9 CalSTRS Fixed Income Benchmark (0.2) 1.1
Total Fund Performance 13.8 Policy Benchmark 13.3 0.5

*Asset and benchmark returns lag one quarter.

As of June 30, 2013, the CalSTRS investment portfolio holdings were 53.3 percent in U.S. and non-U.S. stocks, or global equity; 16.8 percent in fixed income; 13.2 percent in private equity; 13.8 percent in real estate; 1.1 percent in inflation sensitive and overlay assets; and 1.6 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. CalSTRS also provides disability and survivor benefits. For 100 years, CalSTRS has served California’s public school educators and their families, who today number 862,000 from the state’s 1,600 school districts, county offices of education and community college districts.