CalSTRS reports 1.4 percent net return on investments

[July 20, 2016]  By Rory Carroll

SAN FRANCISCO (Reuters) - The California State Teachers' Retirement System reported on Tuesday an investment return of 1.4 percent for its fiscal year ending June 30, underperforming the system's assumed rate of return of 7.5 percent.

The country's second largest public pension fund, known as CalSTRS, reported that the past fiscal year was marked by volatile equity markets and the United Kingdom's June 23 referendum to exit the European Union, also known as Brexit.

This marks the second consecutive year that the annual performance fell below the pension fund's assumed rate of return, or expectation of future investment earnings, since fiscal year 2011-12.

The pension fund said it's still on track for its three- and five-year performance goals. The three-year net return is 7.8 percent, and over five years, the net return is 7.7 percent.

“Single-year performance and short-term shocks, such as Brexit, may catch headlines but the CalSTRS portfolio is designed for the long haul. We look at performance in terms of decades, not years,” said CalSTRS Chief Investment Officer Christopher J. Ailman in a statement on Tuesday. “The decade of the 2010s has so far been a good performer, averaging 10.3 percent net.”

Real estate and fixed-income delivered the strongest returns with 11.1 percent and 5.7 percent. The worst-performing asset was global equities, which returned a negative 2.3 percent.

Private-equity returned 2.9 percent, and inflation-sensitive investments were 4.2 percent.

CalSTRS sister fund, the California Public Employees' Retirement System, on Monday announced a 0.61 percent net rate of return for the same period, also underperforming its annual assumed rate.

CalPERS fund officials, recognizing that the wave of retiring babyboomers means it will pay out more in benefits than it takes in from contributions and investment income, have projected that the fund could have negative cash flow for at least the next 15 years.

CalPERS is a $302 billion fund, while CalSTRS, which administers benefits for California educators, is a $188.7 billion fund.

(Reporting by Rory Carroll; Editing by Bernard Orr)

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