CalSTRS diverse portfolio drives historic fiscal year gains

The $309 billion California State Teachers’ Retirement System announced a 27.2% fiscal net return — a record high fueled in part by private equity gains that neared 52% for the year ending June 30, 2021.

Officials pointed to strong returns that outperformed across the board despite the pandemic.

“We’ve built our portfolio for long-term performance, but this year’s results were nothing short of spectacular,” said Christopher Ailman, CalSTRS CIO. The record-breaking figures are the best returns the pension system has seen since the late 1980s, he said.

The $33 billion private equity portfolio is approaching its long-term target allocation of 13%. A memo on investment pacing for the upcoming year pointed that as of late commitment pacing had been roughly $8 billion each year with increasing amounts going to co-investment.

Perhaps most notably is the idea that private equity is now being done in collaboration with other asset classes, including global equity, fixed income and innovative strategies.  

Public equities returned roughly 42% over the course of the year, trailing behind the private equity portfolio. The third best return was within inflation sensitive assets, a portfolio that includes both public fixed-income and commodities-related assets and private less-liquid holdings in areas such as infrastructure. The program gained 18% over the course of the last fiscal year.

Earlier this year, CalSTRS began considering important shifts within its alternative investment portfolios, including an additional allocation of up to roughly $1.8 billion to macro strategies. According to the most recent pacing plans, CalSTRS goal is to increase the $22 billion-plus risk mitigating strategies program’s AUM to 10% of total plan assets by the end of the calendar year.

The pension onboarded Albourne, to be the advisor to the now $24 billion risk mitigating and innovation portfolio going forward. Risk mitigating strategy consists of long duration U.S. Treasuries (40%), trend following strategies (45%), global macro (10%) and systematic risk premia (5%).

As of June 30, 2021, the CalSTRS Investment portfolio holdings were 49.7% in U.S. and Non-U.S. stocks (public equity); 12.3% in real estate; 10.4% in fixed income; 8.6% in risk mitigating strategies; 12.0% in private equity; 3.7% in inflation sensitive; 0.5% in innovative strategies; and 2.8% in strategic overlay and cash.