CalSTRS, CalPERS Returns Snap Four-Year Winning Streak

July 21, 2008 ( - The nation's two largest public pension funds lost money during their last fiscal year - but it could have been worse.

The California Public Employees’ Retirement System (CalPERS), with $239 billion in assets, posted a 2.4% loss for year that ended June 30, while the California State Teachers’ Retirement System (CalSTRS), with $162 billion in assets, lost 3.7%.  

“It was difficult for any investor to make positive returns in stocks this past year, but we realized gains in other areas, ending the year in good financial shape,” said Anne Stausboll, CalPERS Interim Chief Investment Officer, in a  press statement .   “Despite troubled economic times, especially in the equities markets, our portfolio continues to provide long-term stability for our members financial futures,” echoed CalSTRS Chief Executive Officer Jack Ehnes in announcing the results of the nation’s second largest public pension plan.   A CalSTRS  press release  cited a 5% average loss for public pensions, according to Merrill Lynch analysts.   Both systems touted their longer-term performance histories, four straight years of double-digit investment growth.

“I look at single-year returns as a one-mile measurement within a marathon. It’s a long race and we’ve just had a slow mile. Over the last three and five years we exceeded our goal,” said CalSTRS Chief Investment Officer Christopher J. Ailman.

Still, when all was said and done, CalPERS says it was 93% funded, and CalSTRS noted that, despite the single-year loss, the longer term returns continue to exceed the 8% average return necessary to meet projected benefit obligations to the system’s 813,000 members (CalSTRS’ return over three years is 9.7%, over five years it is 11.5%.

As for the source of those returns, CalPERS lost an estimated 10.7% on equities, blunting gains in private equity (19.6% for the 12 months ending 03/31), real estate (8.1%, also through March 31), and global fixed income (7.7%).   While it is still a small part of the CalPERS portfolio (soon to get larger), the system's new Inflation-Linked Asset Class returned 22.9%.   CalPERS noted that recent asset allocation decisions further diversified the portfolio (see  CalPERS Adjusts Asset Allocation ) by creating that new inflation-linked asset class (targeted for 5% of assets), increasing allocation to private equity by 4%, and expanding real estate (with a tilt toward international investing) by 2%.   These shifts will be funded by reductions in global equity and fixed income.

For its part, CalSTRS lost 13.4% on its U.S. stock portfolio, and 5.8% on non-U.S. equities, but saw gains in real-estate (11.8%), fixed income (6.1%), and private equity (11.6%).

As of June 30, 2008, CalPERS was invested as follows:

  • 51.9% - public equities
  • 24.7% - fixed income
  • 10.3% - private equity
  •    9.9% - real estate
  •   2.0% - inflation-linked
  •   1.2% - cash and cash equivalents.

CalPERS is the nation's largest public pension fund with 1.5 million publicly employed workers, retirees and their families. CalSTRS is the nation's second-largest public pension fund providing benefits to 813,000 current and retired educators and their families.