CalSTRS Reports Second Year of Healthy Investment Returns in 2013-14
Equities fueled second year of double-digit returns

News release Michael Sicilia

WEST SACRAMENTO, Calif. – Continued growth in the equity market, coupled with a bias to U.S. companies, fed a second year of healthy investment returns at the California State Teachers’ Retirement System (CalSTRS), which closed the 2013-14 fiscal year with an 18.66 percent return on its investments.

The picture for the fiscal year July 1, 2013 to June 30, 2014 shows investment returns well above the actuarial assumed rate of 7.5 percent. On a long-term, portfolio-wide basis, CalSTRS’ returns reflect the following performance levels:

  • 11.2 percent over three years
  • 13.7 percent over five years
  • 7.7 percent over 10 years
  • 8.4 percent over 20 years

“These numbers are extraordinary and very encouraging, especially given the recent passage of the funding plan which secures the financial future of our 860,000-plus members,” said CalSTRS Investment Committee Chair Sharon Hendricks. “This second year of outstanding portfolio performance positions us well as we move into the future with a diverse asset allocation in place.”

Investment returns have begun to show a positive trend following years of market volatility as economic recovery slowly took root. The fund’s second consecutive double-digit performance follows a 13.8 percent portfolio return in FY 2012-13. That was preceded in FY 2011-12 by a flat 1.8 percent return. In FY 2010-11 and FY 2009-10, CalSTRS posted impressive returns of 23.1 and 12.2 percent, respectively. In contrast, the recession years of 2007-08 and 2008-09 saw returns of -3.7 percent and -25 percent. Those negative years drove much of the increase in the funding shortfall following the dot-com bust of the early 2000s.

“It’s that volatility and the potential for more of it in the future that makes a responsible funding plan so instrumental to the long-term viability of this pension fund – a truly irreplaceable feature for our members who earn a modest retirement benefit and do not participate in Social Security for CalSTRS-covered employment,” added CalSTRS Chief Executive Officer Jack Ehnes. “As our staff and industry experts have stated for more than a decade, sufficient contributions and realistic returns are the lifeblood of a sound pension system. The new funding plan, a result of the passage of AB 1469, and a truly stellar investment staff, means CalSTRS has the resources to invest prudently and continue to weather future financial storms.”

Fiscal Year 2013–14 Returns and Performance by Asset Class 

Asset Class FY 13-14 Return Benchmark  Benchmark Return Over or Under Performance
Global Equity 24.73 CalSTRS Global Equity Benchmark 24.22 0.51
Private Equity* 19.61 Russell 3000 Index ex tobacco & firearms plus 300 basis points  26.43 -6.82
Real Estate* 14.52 NCREIF ODCE Value Weighted Index 12.75 1.77
Inflation Sensitive 10.54 CalSTRS Inflation Sensitive Benchmark 8.48 2.06
Absolute Return 0.13 90 day Treasury Bills plus 100 basis points 1.07 -0.94
Fixed Income 5.79 CalSTRS Fixed Income Benchmark 4.72 1.07
Total Fund Performance 18.66 Policy Benchmark 19.17 -0.51

*Asset valuations and benchmark returns lag one quarter.

As of June 30, 2014, the CalSTRS investment portfolio holdings were 57.3 percent in U.S. and non-U.S. stocks, or global equity; 15.5 percent in fixed income; 11.5 percent in private equity; 11.7 percent in real estate; 1.5 percent in inflation sensitive and absolute return assets; and 2.5 percent in cash.

“I give tremendous credit to our outstanding investment staff for making the right moves and hiring the right investment managers to help us outperform,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “Our returns this year and last have put us at the top quartile of pension plans in the U.S. For a second year we outperformed our peers and even large university endowments. Four out of six asset classes outperformed their benchmarks.” 

The California State Teachers’ Retirement System, with a portfolio valued at $189.1 billion as of June 30, 2014, is the largest educator-only pension fund in the world. 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. CalSTRS serves California’s 868,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.