CalSTRS reports 21.7% PE return

The US pension refuses to ‘sell at loss’, temporarily shifting 5% of its equities portfolio to private equity, real estate and fixed income to take advantage of distress.

The California State Teachers’ Retirement System recorded a 21.7 percent return on its private equity investments over the past year and will temporarily increase its allocation to the asset class to take advantage of distress in the market. The positive performance sharply contrasts the 27.6 percent loss recorded for the asset class during the same 12-month period last year.

The $132.2 billion public pension reported overalls gains of 12.3 percent for the fiscal year ending 30 June, beating an actuarial rate of 8 percent and bringing in more than $10 billion as of the end of June. Every asset class posted a positive performance for the pension, aside from real estate. 

In a statement, chief investment officer Christopher Ailman said the pension was “not out of the woods yet”, adding: “The American economy suffered a near-death experience in 2008, and it’s going to take some time to fully recuperate from that. This year’s performance is a solid start along that road to recovery.”

CalSTRS reported gains of 14.5 percent for global equities and 12.3 percent for fixed income, but lost 12.4 percent on its real estate investments over the past year. The pension had an actual allocation to private equity of 14.5 percent; 51.7 percent to equities and 22 percent to fixed income.

As a result, investment staff have temporarily shifted 5 percent of CalSTRS' portfolio from global equities to private equity, real estate and fixed income to “take advantage of the distressed market”, as well as create a 5 percent allocation to a new inflation-protection absolute return asset class, offset by a permanent 5 percent reduction in equities.

The pension, however, has also noted the lack of real estate and infrastructure deals, saying in July investment committee notes that it would slow the pace of increase in relation to its exposure of the two asset classes.