CalSTRS sees its real estate portfolio bounce back

After underperforming the previous fiscal year, the $165.8 billion pension system’s property investments beat their benchmark by a wider margin than any of the organization’s other asset classes.

The California State Teachers’ Retirement System (CalSTRS) reported a turnaround in its real estate results for the fiscal year ending on June 30. The second-largest US pension plan generated a 14.1 percent return during the 12-month period, beating its 10.5 percent benchmark, the NCREIF Property Index, by 3.6 percent.

The property return represented a reversal in results from the previous fiscal year, when real estate at CalSTRS returned 9.2 percent, missing its 13.2 percent benchmark by 4.2 percent. The underperformance of the asset class contributed to generally flat investment returns at the pension system during that period, with a 1.8 percent overall return – about 150 basis points below the policy benchmark of 3.3 percent. 

Fiscal year 2012-13, however, closed with a 13.8 percent investment return for the pension system. Real estate was the second strongest-performing asset class for CalSTRS, following global equity, which earned 19.2 percent during the fiscal year. 

Indeed, CalSTRS noted the volatility of its recent fiscal-year performance returns. “Investment returns have been erratic over the past several years,” the pension system stated in its fiscal-year results. “The current performance followed a lackluster year, with the fund returning only 1.8 percent in 2011–12 preceded by a 23.1 percent return in 2010–11.”

Property represented 13.8 percent of CalSTRS’ portfolio holdings, which totaled $165.8 billion as of June 30. In its results, the pension plan noted that the asset and benchmark returns for both real estate and private equity lag by one quarter.