Flat investment returns for the past year at the California State Teachers Retirement System (CalSTRS) and the California Public Employees Retirement System CalPERS, are showing the strains of the highly volatile and challenging global markets. The silver lining:
commercial real estate returns for both pension funds way outperformed other asset classes.
CalSTRS' 1.8% return rate is well below the actuarial assumed rate of 7.5% and 150 basis points below the policy benchmark, the fund's performance measuring stick. The CalSTRS Investment Portfolio's market value for the fiscal year ending June 30 was $150.6 billion.
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CalPERS reported a 1% return on investments for the 12 months that ended June 30, 2012, falling short of its benchmark that returned 1.7%. CalPERS' assets at the end of the fiscal year stood at more than $233 billion.
"The last 12 months were a challenging period for all investors as the ongoing European debt crisis and slowing global economic growth increased market volatility and reduced equity returns," said Joe Dear, CalPERS' chief investment officer, echoing what CalSTRS also said.
Jack Ehnes, CalSTRS' CEO also was echoing what CalPERS was saying about reading too much into 1-year returns.
"A year like this one underscores the wisdom of viewing CalSTRS' performance in the long term and refraining from using one given year's performance as the gauge for how well the fund is doing," Ehnes said.
CalSTRS three-year return is 12% and its 20-year return 7.5%. CalPERS' 20-year investment return is 7.7%.
For the past fiscal year, CalPERS' real estate investments returned a 15.9% gain beating fixed income gains of 12.7% and infrastructure gains of 8.4%. Its biggest losers were forestland posting -11% returns; public equities, -7.2%; and private equity,-5.4%.
At CalSTRS, real estate returned 9.2% gain beating fixed income gains of 7.3% and private equity's 5.9%. Global equity returns were a -3.1%.
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