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.  

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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.

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