CalSTRS reports loss despite 11.6 percent gain from PE

The second largest US pension suffered a 3.7 percent decline in its overall investment portfolio, its first negative return in six years.

The California State Teachers’ Retirement System has reaped an 11.6 percent return from its private equity allocation while suffering the first drop in its overall value in six years.

The $162.2 billion (€102 billion) pension, the second largest in the US, saw its $16.8 billion private equity portfolio more than double its benchmark return of 4.9 percent for the twelve month period ending June 30.

For the second consecutive year, CalSTRS overweighted its private equity allocation, exceeding its original 8 percent target with an actual allocation of 10.4 percent. 

Despite gains from its private equity investments, which have returned roughly 20 percent since CalSTRS began allocating to alternatives, the pension giant reported an overall loss of 3.7 percent for fiscal year 2007-2008.

The negative annual return is a sharp break from CalSTRS’ past four years of double digit growth. In fiscal year 2006-2007, the pension enjoyed a strong absolute return of 21.03 percent, increasing its total value by $28.1 billion.

The rapid downturn is mostly attributable to CalSTRS’ exposure to the US and international public markets, both of which have performed dismally over the last two quarters. CalSTRS’ US equities portfolio fell 13.4 percent, underperforming its benchmark of -12.8 percent. Investments in non-US equities declined 5.8 percent in value, beating its -6.7 percent benchmark.

CalSTRS’ real estate investments topped all asset classes with an 11.8 percent return, but fell short of its 13.6 percent benchmark.

CalSTRS’ figures mirror trend revealed in the California Public Employees’ Retirement System’s annual report last week: a relatively strong performance from alternatives mitigated by a dramatic decline in public equities. 

CalPERS, the largest public pension in the country, reported a $10.3 billion drop in the pension’s overall value despite a strong 19.6 percent from its private equity allocation.