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UPDATE 1-CalSTRS annual returns jump to 13.4 pct from 1.4 pct
July 20, 2017 / 6:19 PM / 2 months ago

UPDATE 1-CalSTRS annual returns jump to 13.4 pct from 1.4 pct

(Adds context and more specific information about returns)

By Robin Respaut

July 20 (Reuters) - The California State Teachers’ Retirement System on Thursday reported a 13.4 percent net return on investment for the fiscal year ended June 30, marking the first time the public pension fund exceeded its target return since 2014.

Boosted by public and private equities, CalSTRS performed significantly better than last year, when it returned 1.4 percent.

The higher returns relieve some pressure for CalSTRS, the country’s second-largest public pension fund with $208.7 billion in assets. Over the past five years, the fund averaged a 10.1 percent return.

CalSTRS Chief Investment Officer Christopher Ailman cautioned against making too much of a single year’s fund performance, however.

“Just as one bad year will not break us, one good year won’t make us. We intentionally keep our eyes focused on a 30-year horizon and make our adjustments with that timeframe in mind, rather than reactively responding to any given situation at-hand,” Ailman said in a statement.

U.S. public pension funds are under increasing pressure to achieve returns closer to their assumed rate of returns, which CalSTRS lowered to 7 percent from 7.5 percent starting in 2018.

The pension fund’s historical performance over the past decade was 5 percent, and over the last 20 years, CalSTRS returned 6.9 percent.

During the past fiscal year, CalSTRS’ strongest asset class was public equities, or its stock portfolio, which topped the S&P 500 benchmark of major U.S. companies, 19.6 percent to 15.3 percent.

Private equity returned 17.2 percent and real estate assets returned 8.1 percent. Fixed income returned 1.2 percent.

CalSTRS’ sister fund, the California Public Employees’ Retirement System, or CalPERS, reported on Friday a 11.2 percent net return on investments for the same period, up sharply from last year’s return of 0.6 percent.

Investment earnings are typically the major revenue source for public pension funds, so lower-than-expected investment returns can lead to fund deterioration. To improve, pension funds either need to earn better-than-expected returns in the future, request higher contributions from workers or reduce retiree benefits.

As of June, CalSTRS’ investment portfolio holdings were 56.4 percent in domestic and international stocks, 8.1 percent in private equity, 12.6 percent in real estate, 14.7 percent in fixed income.

Reporting by Robin Respaut in San Francisco; Editing by Meredith Mazzilli

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