CalSTRS’ infra portfolio underperforms

CalSTRS’ inflation-sensitive asset class posted negative returns for the fiscal year 2014-15, while the pension fund’s overall portfolio remained flat year-on-year.

Slow economic growth in both the US and abroad as well as global volatility kept the California State Teachers’ Retirement System’s (CalSTRS) gross return on investment for the fiscal year ending June 30, 2015, at 4.8 percent, the pension fund said in a statement.

It is the first time CalSTRS’ rate of return has fallen below the actuarially assumed rate of 7.5 percent since fiscal year 2011-12, the pension fund said.

The inflation-sensitive portfolio, which comprises infrastructure and global treasury inflation protected securities (TIPS), was the worst performing, with a negative return of 4.7 percent.

“The performance is a combination of things,” CalSTRS’ spokesperson Ricardo Duran said in an e-mail. “Given that infrastructure is such a new programme, its assets are deep in the J-Curve. With regards to Global TIPS […], global market volatility combined with a strong dollar worked against return,” he added.

CalSTRS has been investing in infrastructure since 2010. As of June 30, 2015, its infrastructure portfolio stood at $909.9 million, while the Global Inflation Linked Securities portfolio had a market value of $553 million, Duran said. The inflation-sensitive portfolio therefore accounts for 0.7 percent of the fund’s $191.4 billion portfolio. The target allocation for the asset class is one percent.

The best performers during the 12-month period were real estate and private equity which exceeded their respective benchmarks with returns of 13.4 percent and 9.1 percent respectively. 

Still, the pension fund’s longer-term performance remains strong, with returns of 12.3 percent and 12.1 percent over three- and five-year periods, respectively.

“Thinking beyond the short term is the cornerstone to the success of a large, mature pension system like CalSTRS and the current year’s performance will not adversely impact the long-term financial health of the system,” CalSTRS’ chief executive Jack Ehnes said in a statement.

Founded in 1913 and headquartered in Sacramento, CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans.

It provides benefits to over 879,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.

The second-largest public pension fund in the US, CalSTRS is the largest educator-only pension fund in the world.