CalSTRS returns 3.9% in 2019–20 amid volatile markets

News release Karen Doron

WEST SACRAMENTO, Calif. (July 20, 2020) – The California State Teachers’ Retirement System (CalSTRS) today announced its investment portfolio returned 3.9% net of fees for the fiscal year ending June 30, 2020, and recorded the year-end fund value at $246.0 billion. The 2019–20 return reflects the ongoing impact of COVID-19 on global financial markets.

“Over CalSTRS’ more than 100 years, we have seen the fund weather several recessions, two world wars, and the pandemic of 1918, ” said Chief Executive Officer Jack Ehnes. “This crisis is unique in many ways, but for CalSTRS, this is the first time we have gone into a recession with a plan for full funding in place. We are ready and able to guide the fund through times of uncertainty. “

CalSTRS is a long-term investor with a goal of achieving an average return of 7% over a multiyear horizon to meet pension obligations. The 25-year, 10-year and 5-year fund performance are all above or near the 7% investment return assumption at 7.5%, 9.3% and 6.8%, respectively. The 3-year fund performance landed at 6.5%.

CalSTRS Investment Fund Performance; Long-term Historical Perspective; Net of Fees as of June 30, 2020; 25-year, 7.5%; 20-year, 5.8%; 10-year, 9.3%; 5-year, 6.8%; 3-year, 6.5%; 1-year, 3.9%; Investment Assumption: 7.0% return.

Financial markets experienced unprecedented volatility over the first half of 2020. January through March 2020 was the worst first quarter ever recorded in stock market history. March 2020 was also the most volatile month in history since the November 1929 market crash. After the spring 2020 decline, markets saw the quickest rebound in U.S. history.

“We have never seen the level of volatility the U.S. and global financial markets exhibited over the short period from late February to May, ” said Chief Investment Officer Christopher J. Ailman. “We evaluated risk daily and sometimes multiple times a day, and were able to manage the portfolio remotely during shelter-in-place. CalSTRS adapted quickly and rose to the occasion during a year when the entire world has been called upon to go above and beyond. “

The Risk Mitigating Strategies (RMS) asset class became a part of the total plan asset allocation in 2016. It is constructed to perform well during deep and extended equity market downturns in order to protect the total fund. RMS performed as expected during the sudden drop in March 2020, cushioning some of the losses in public equity. The Private Equity, Real Estate, Inflation Sensitive and Fixed Income asset classes all performed better than their custom benchmarks.

Asset class/strategy and benchmark performance breakdown

CalSTRS Asset Class/Strategy 10-Year Return 5-Year Return 3-Year Return Fiscal Year
2019-20
Return
Fiscal Year
2019-20
Custom Benchmark Return
Fiscal Year
2019-20
Over/Under Performance
Total Public Equity 10.5% 6.8% 6.0% 1.2% 1.5% (0.3%)
Private Equity* 11.3% 8.7% 7.9% (0.1%) (4.0%) 3.9%
Real Estate* 10.5% 8.8% 8.3% 6.4% 3.9% 2.5%
Inflation Sensitive 5.4% 5.8% 5.2% 1.1% (0.1%) 1.2%
Risk Mitigating Strategies ^ 1.3% 5.9% 7.8% 10.3% (2.5%)
Innovative Strategies 2.4% 4.7% 5.8% (2.7%) (1.2%) (1.5%)
Fixed Income 4.5% 4.7% 5.6% 8.8% 8.3% 0.5%
Total Fund Performance 9.3% 6.8% 6.5% 3.9% 3.7% 0.2%

* Asset valuations and benchmark returns lag by one quarter.
^ Newly funded strategies lack 10-year return.

In addition to creating a volatile investment environment, the COVID-19 crisis also resulted in budgetary challenges for the State of California. To address budget concerns, the Governor and Legislature approved redirecting supplemental payments previously intended to address long-term liabilities, to instead help school districts with contributions in the short term. Districts will receive contribution rate relief for two fiscal years, while member rates are not impacted. The state contribution rate will remain at the 2019–20 level through the 2020–21 fiscal year. To ensure CalSTRS is made whole, the state transferred $297 million of Proposition 2 revenues to CalSTRS, which is more than the missed contributions from freezing the state contribution rate. Over the short term, the 2020–21 California budget is not expected to impact funding levels when compared to projected funding levels under the terms of the funding plan.

About CalSTRS

CalSTRS provides a secure retirement to more than 964,000 members whose CalSTRS-covered service is not eligible for Social Security participation. Members retire on average after more than 24 years in the classroom with a monthly benefit of approximately $4,547. Established in 1913, CalSTRS is the largest educator-only pension fund in the world with approximately $246 billion in assets under management as of June 30, 2020. CalSTRS demonstrates its strong commitment to long-term corporate sustainability principles in its annual Global Reporting Initiative Sustainability Report. For more information, visit CalSTRS.com.