CalSTRS RE return beats benchmark

The $208.7 billion pension system’s 2016-17 fiscal year returns, both overall and in real estate, outperformed those of peer California Public Employees’ Retirement System.

The California State Teachers’ Retirement System saw its real estate portfolio return 8.1 percent in the fiscal year ending June 30, the pension system said Thursday.

CalSTRS beat its 7.4 percent real estate benchmark for the strategy for the year. The pension system managed $208.7 billion as of June 30, with 12.6 percent of the portfolio in real estate. CalSTRS generated a 13.4 percent rate of return overall, outperforming its 12.6 percent benchmark.

Private equity, which comprised 8.1 percent of the portfolio, returned 17.2 percent, well over its 12.6 percent benchmark. Real estate was the fourth-best performing asset class for CalSTRS, after global public equity, private equity and inflation sensitive strategies.

“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,” chief investment officer Christopher Ailman (pictured) said in Thursday’s statement.

On Twitter, Ailman praised CalSTRS’ overall returns on Thursday, noting the pension system outperformed its larger peer, the California Public Employees’ Retirement System. CalPERS’ $323 billion portfolio returned 11.2 percent for the year ending June 30 and its real estate portfolio returned 7.6 percent.

Earlier this month, CalSTRS said it is analyzing how to prepare its real estate portfolio for lower returns, PERE previously reported. The pension system predicted that capital appreciation will slow from 5-8 percent to 1-3 percent as a result of increasing supply and potentially rising interest rates.

“We believe it will be a challenge to attain an 8 percent overall return especially if the US economy slows down. Beating our benchmark will also be a challenge as we are overweighting lower risk strategies,” the pension system wrote in its real estate business plan for fiscal year 2017-18.