CalSTRS Loses 1.3% in Fiscal Year 2022 | Chief Investment Officer

The California State Teachers’ Retirement System reported a 1.3% loss on investments for the fiscal year that ended June 30, as the pension fund’s asset value declined to $301.6 billion from $308.6 billion a year earlier, when the portfolio returned a record 27.2%.

It was CalSTRS’ first negative return since 2009, which it blamed on volatile global financial markets roiled by inflation, rising interest rates, the COVID-19 pandemic and Russia’s invasion of Ukraine. However, a CalSTRS press release says, the fund nevertheless beat its benchmark by 90 basis points.

Its results could have been worse due to the severe market volatility during the second half of the fiscal year, the release says, but the fund credits its risk mitigation strategies with helping soften public market losses.

Over the long term, the pension fund reported 20-, 25- and 30-year annualized returns of 7.8%, 7.2% and 8.0% respectively. And over the near term, the pension fund reported three-, five- and 10-year annualized returns of 9.3%, 8.7% and 9.4% respectively.

As of June 30, the asset allocation of CalSTRS’ investment portfolio holdings was 38.4% in public equity, 16.3% in real estate, 15.7% in private equity, 10.5% in fixed income, 10.3% in risk mitigating strategies, 5.4% in inflation sensitive, 2.3% in strategic overlay and cash and 1.1% in innovative strategies.

“As long-term investors, we think in terms of decades. One-year returns are akin to the pace of running a mile during a marathon,” CalSTRS CIO Christopher Ailman said in a statement. “In a very challenging and unusual market environment where both equities and bonds were down double digits, our diversified portfolio mitigated losses to produce a net -1.3% return.”

CalSTRS fared better than most large public pension funds during the second quarter, as the 100 largest U.S. public pension plans lost a combined $262 billion in funding during June, according to actuarial and consulting firm Milliman. The deficit between the estimated assets and liabilities widened to $1.521 trillion at the end of the month from $1.259 trillion at the end of May, as the funds’ asset value dropped to $4.318 trillion from $4.566 trillion.

The estimated funded ratio for the 100 pension funds fell to 74.0% at the end of June from 78.4% at the end of May. The Milliman Public Pension Funding Index estimates that the plans reported an average investment loss of 5.13% for June alone, with losses ranging from 2.27% to 7.49% during the month.

The total pension liability for the pension funds rose to an estimated $5.839 trillion at the end of June from $5.825 trillion a month earlier. The falling markets sent eight of the plans below the 90% funded level, with just 19 of the 100 plans still above this mark, compared with 27 a month earlier and 46 at the end of 2021. At the same time, five plans fell below the 60% funded level, raising the total number of plans under this threshold to 26, from 21 at the end of May and 18 at the end of last year.

“Public pensions have seen their funding tumble during June 2022, thanks to the continuing turmoil in financial markets,” Becky Sielman, author of Milliman’s Public Pension Funding Index, said in a statement. “Combined with the normal growth in liabilities, these public pensions saw their aggregate deficit rise by $262 billion in June alone.”