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Pension Funds

CalSTRS reports 13.4% return for fiscal year, topping its benchmark

California State Teachers' Retirement System, West Sacramento, announced Thursday double-digit investment returns of 13.4% for the fiscal year ended June 30.

The return outperformed CalSTRS' custom benchmark, which returned 12.6%.

CalSTRS preliminary results were aided by strong equity markets. The $208.7 billion pension fund returned 19.6% for public equity for the fiscal year, just topping the pension fund's custom benchmark return of 19.5%.

Public equities are CalSTRS' largest asset class, accounting for 56.4% of its total portfolio.

The latest results are a significant turnabout from the previous two fiscal years when CalSTRS saw single-digit returns. In the fiscal year ended June 30, 2016, the overall return was 1.4%.

CalSTRS CIO Christopher Ailman said in a statement that he was happy with the results but cautioned that they needed to be taken in context.

“Just like one bad year will not break us, one good year will not make us,” Mr. Ailman said. “We intentionally keep our eyes focused on a 30-year horizon and make our adjustments with that time frame in mind, rather than reactively responding to any given situation in hand,” he said.

CalSTRS had lowered its return expectation to 7% starting July 1, 2018, from 7.5%, based on forecasts that investment returns will be diminished in the future.

Private equity was CalSTRS second-best asset class in the latest fiscal year, returning 17.2%, vs. the custom benchmark's 12.6%. It was followed by real estate, 8.1% vs. 7.4%.

Both the private equity and real estate returns are as of March 31 because they lag by one quarter. Private equity makes up 8.1% of the CalSTRS portfolio and real estate, 12.6%.

CalSTRS other large asset class, fixed income, returned 1.2% in the latest fiscal year, compared with its custom benchmark of 0.3%. Fixed income makes up 14.7% of the total portfolio.

CalSTRS' inflation-sensitive asset class, which includes TIPS and Treasuries, saw returns of 9.1%, which topped the pension fund's custom benchmark of 4.6%.

Risk-migitating strategies, a new asset class designed to be a hedge against an equity market downturn, returned -8.9%, underperforming the custom benchmark of -8.2%.

CalSTRS' innovative strategies asset class saw a return of 5.9% in the fiscal year, underperforming the custom benchmark's 11.4%.

For the three years ended June 30, the pension fund returned an annualized 6.3%; for five years, 10.1%; 10 years, 5%; and 20 years, 6.9%.