CalSTRS sees slight glimmer with real estate return

CalSTRS’ real estate portfolio returned 3% return for the quarter ended March 31, outperforming its benchmark for the first time in 10 years for all time periods, according to a report presented at Friday’s investment committee meeting.

The report by The Townsend Group for the $152.1 billion California State Teachers’ Retirement System, West Sacramento, said the benchmark NCREIF Property index returned 2.6% for the quarter.

But real estate lagged the index for the five years ended March 31, returning an annualized -7.6% vs. the NCREIF index’s 2.9% during the same period. For the year ended March 31, CalSTRS’ real estate portfolio returned 7.7% vs. 13.6% for the index.

“Exposure to peak market vintages for higher risk/return investment strategies will result in benchmark challenges until market decline periods roll off the five-year period and dollar cost averaging (currently under way; primarily within the core and opportunistic portfolios) allows for newer, stronger vintage year investment strategies to outweigh the impact of underperforming assets,” the report said.

The pension fund’s private equity portfolio continues to have its own challenges. Private equity returned 6.4% for the quarter ended March 31 vs. 13.6% for the pension fund’s custom benchmark, according to a separate report by Pension Consulting Alliance, the pension fund’s private equity consultant. For the year ended March 31, the private equity portfolio returned 7.2% vs. 10% for the benchmark. For five years, the portfolio returned an annualized 5.3% compared to the benchmark’s 7.3%.

Michael Moy, a managing director at Pension Consulting Alliance, said vintage-year investments made between 2005 and 2008 were underperforming. Mr. Moy said “it’s going to be awhile” before any recovery, but he didn’t go into detail.

The real estate portfolio had $21.6 billion as of March 31, while private equity stood at $22.4 billion.