CalSTRS Selects Russell 3000 as U.S. Equity Portfolio Performance Benchmark

News release

Sacramento, CA – The California State Teachers’ Retirement System today adopted the Russell 3000 (excluding tobacco) as its benchmark to track the performance of the broad U.S. equity market. The nation’s third largest pension fund examined three indices before selecting the Russell 3000.

“This was a tough decision. We were intrigued with the S & P 1500 Index and especially the Dow Jones U.S. Total Market Index,” said Christopher J. Ailman, CalSTRS chief investment officer. “However, at the end of the day, we concluded the Russell 3000 provided the closer degree of measurement of the investable market that we need for a fund of our size.”

CalSTRS uses a benchmark to measure the performance of its $40.9 billion domestic equity portfolio and its active managers, who handle 20 percent of that portfolio. Since May 2001, the benchmark had been a blend of two indices, the S & P 500 and the Russell Small Cap Completeness Fund, both excluding tobacco. Between 1997 and 2001, the Russell 3000 had been the benchmark. Another use of the benchmark is to replicate it in the passive equity investment structure of the portfolio. The CalSTRS board will examine this question in closed session later this year.

“We took a break from the Russell 3000 to look over the field. We’re happy to see our initial choice is still the right one for us,” said Ailman. “However, we didn’t pick this index to beat another one, but to define how we look at the broad market. It’s more of a question whether we measure in inches or centimeters.”

CalSTRS is the third largest pension fund in the U.S., with a $101 billion investment portfolio. The pension system serves approximately 687,000 members and benefit recipients by providing retirement, disability and survivor benefits to California’s public school educators in grades kindergarten through community college. Those benefits are guaranteed by law and are not affected by changes in the investment portfolio.