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CalSTRS reports loss despite 11.8 percent gain from RE

The second largest US pension suffered a 3.7 percent decline in its overall investment portfolio, its first negative return in six years. It follows last week's 2.4 percent loss on investments at CalPERS, despite strong returns for private equity and real estate.

The California State Teachers’ Retirement System (CalSTRS) has reaped an 11.8 percent return from its real estate allocation while suffering the first drop in its overall value in six years.

However despite real estate producing the largest return of any asset class for the $162.2 billion (€102 billion) pension fund, real estate underperformed against its benchmark for the year ending June 30. The $20.8 billion real estate portfolio recorded returns of 11.8 percent against a benchmark of 13.6 percent.

The pension’s private equity portfolio was the only asset class to beat its growth benchmark, returning 11.6 percent against a benchmark of 4.9 percent for the past year.

CalSTRS – the second largest public pension in the US – overweighted its real estate and private equity allocations, exceeding its original targets of 10 percent and eight percent respectively. Real estate accounts for 12.8 percent of the pension’s overall investments, while private equity investments account for 10.4 percent. 

But despite gains from its real estate and private equity investments, 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 an 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’ figures mirror investment returns at neighboring fund, the $231.8 billion California Public Employees’ Retirement System (CalPERS), which last week reported 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 19.6 percent return from its private equity allocation and 8.1 percent return from real estate.