CalSTRS Posts 8.4% Gain in Fiscal 2024

The California State Teachers’ Retirement System achieved an 8.4% return in its fiscal year 2024, a period ending June 30, the fund announced on Tuesday. Like most other funds this year, that return was boosted by strong public equities returns, for CalSTRS, that asset class returned 19%. 

“A year of strong performance in the global public markets underscores the importance of our highly diversified portfolio,” CalSTRS CIO Scott Chan said in a statement. “As long-term investors, we prioritize sustained returns over decades. Our track record of consistent returns, above our 7.0% investment assumption, demonstrates our effective approach to investing.”

The fund also saw strong returns from its collaborative strategies, a set of investments across the public and private markets in unique and innovative opportunities, these investments typically have increased control from CalSTRS and lower fees. This asset class returned 14.4% in the fiscal year, reported on a one quarter lag.

The fund’s private equity portfolio returned 8.6%, inflation sensitive assets returned 3.2%, and risk-mitigating strategies returned 2.6%. The only negative returning asset class, real estate, returned negative 9.8%. 

Over the past five, 10, 20 and 30 years, the fund has returned an annualized 8.5%, 7.7%, 7.6%, and 8.1% respectively. The fund aims to surpass an actuarial return assumption of 7%, the fund’s benchmark, and the return needed to meet the fund’s pension obligations.

The fund reported an asset allocation of $41.4% to U.S. equities, 15.5% to private equity, 13.9% to real estate, 11.2$ to fixed income, 8.4% to risk mitigating strategies, 6.3% to inflation sensitive assets, 1.7% to strategic overlay assets and cash, and 1.6% to collaborative strategies.

CalSTRS manages pensions for more than one million beneficiaries, current and retired teachers of California.

Arleen Jacobius of Pensions & investments also reports CalSTRS beats its benchmark with 8.4% fiscal-year return, propelled by stocks:

CalSTRS earned an 8.4% net return for fiscal year 2024, beating its 7.4% benchmark, the $337.9 billion, West Sacramento-based pension fund reported.

The California State Teachers' Retirement System's most recent fiscal year return also exceeded the prior year's gains of 6.3% and the pension fund's 7% assumed rate of return.

CalSTRS funded status was 75.9% as of June 30, 2023, the sixth consecutive year its funded status has increased. The pension fund’s actuarial valuation including its funded status through June 30 will be released in May 2025.

CalSTRS earned 8.5% for the five-year period, 7.7% for the 10-year, 7.6% for the 20-year and 8.1% for the 30-year period ended June 30. CalSTRS outperformed its benchmark in all time periods: 7.7% for the five-years, 7.3% for the 10-years, 7.5% for the 20-years and 7.8% for the 30-years ended June 30.

The best performing asset class for the fiscal year was public equity at 19%, outperforming its 18.6% benchmark, followed by collaborative strategies with 14.4%, above its 8.8% benchmark.

Private equity's internal rate of return lagged a quarter and totaled 8.6%, besting its 6.6% benchmark; inflation sensitive was 6.4%, outperforming its 5.2% benchmark; fixed income was at 3.2% vs 3% benchmark; risk mitigating strategies was at 2.6% vs. CalSTRS' 1.8% benchmark and real estate lost -9.8% vs. a loss of -12% for its benchmark.

As of June 30, CalSTRS had 41.4% in U.S. and non-U.S. stocks, 15.5% in private equity; 13.9% in real estate; 11.2% in fixed income; 8.4% in risk mitigating strategies; 6.3% in inflation sensitive; 1.7% in strategic overlay and cash, and 1.6% in collaborative strategies.

And Rya Jetha of Bloomberg reports CalSTRS posts 8.4% gain for fiscal 2024, underperforms CalPERS:

The California State Teachers’ Retirement System, the second-largest US public pension fund, returned 8.4% for its latest fiscal year — exceeding its target but lagging behind the country’s largest pension.

The returns pushed Calstrs’ total assets to $341.4 billion for the fiscal year ended June 30, the pension said in a statement Tuesday. Calstrs said it’s ahead of schedule in reaching full funding by 2046, with 75.9% of its future obligations covered, and that it outpaced its 7% target.

“While the 8.4% return over the past year is commendable, our true commitment lies in fostering consistent, long-term growth for our members’ pensions,” Chief Investment Officer Scott Chan said in the statement.

Earlier this month, the California Public Employees’ Retirement System reported a 9.3% gain for its latest fiscal year, pushing that pension’s assets to $502.9 billion.

Public equity investments showed the strongest returns for Calstrs at 19%, followed by collaborative strategies at 14.4% and private equity at 8.6%. Real estate fell 9.8% but still exceeded its benchmark, according to Calstrs.

CalSTRS issued a press release going over the results for fiscal 2024:

WEST SACRAMENTO, Calif. (July 30, 2024) — The California State Teachers’ Retirement System (CalSTRS) today announced an 8.4% net return on investments for the 2023–24 fiscal year, ending with the total fund value at $341.4 billion as of June 30, 2024.

CalSTRS is a long-term investor with a goal of achieving an average return of 7.0% to meet pension obligations. The 2023–24 return keeps CalSTRS on track, as the 5-, 10-, 20- and 30-year returns all surpass the actuarial assumption of 7.0% during a period of inflation, rising interest rates and geopolitical uncertainty.

CalSTRS’ public assets are valued through June 30, 2024, while private assets are cashflow adjusted and valued through March 31, 2024. The valuations and benchmark returns of the private assets, primarily held within the Real Estate, Private Equity and Inflation Sensitive portfolios accounting for over 35% of the CalSTRS Investment Portfolio, lagged three months, per industry standards.

“This is another important step in protecting the more than 1 million California public educators and beneficiaries who rely on us to help secure their future,” Chief Executive Officer Cassandra Lichnock said. “Our strong returns this year reflect our steady progress toward achieving full funding to keep the promises made to our members.” 

CalSTRS is ahead of schedule in reaching full funding by 2046. The CalSTRS funded status was 75.9% as of June 30, 2023, the sixth consecutive year the funded status has increased. It has grown more than 13% (from 62.6% to 75.9%) since 2017. Funded status refers to the ratio of CalSTRS assets to its total liabilities.

The next actuarial valuation of the Defined Benefit Program, which will include an updated funded status, will be released in May 2025.

“A year of strong performance in the global public markets underscores the importance of our highly diversified portfolio,” Chief Investment Officer Scott Chan said. “As long-term investors, we prioritize sustained returns over decades. Our track record of consistent returns, above our 7.0% investment assumption, demonstrates our effective approach to investing.

“While the 8.4% return over the past year is commendable, our true commitment lies in fostering consistent, long-term growth for our members’ pensions.”

Public Equity investments showed the strongest returns, at 19%. Also strong was Collaborative Strategies, with a portfolio return of 14.4%.

Private Equity (8.6%), Inflation Sensitive (6.4%), Fixed Income (3.2%) and Risk Mitigating Strategies (2.6%) also delivered positive returns. Real Estate reported a negative return (–9.8%),  yet still exceeded its benchmark.

CalSTRS also exceeded its total fund benchmark in 2023–24 by 1.0%. Benchmarks are set by the Teachers’ Retirement Board, which governs CalSTRS. Asset classes and the CalSTRS Investment Portfolio are measured against the benchmarks. Comparing the CalSTRS performance to its respective benchmarks identifies the contribution or loss caused by manager performance and strategic asset allocation decisions.

As of June 30, 2024, the CalSTRS Investment Portfolio holdings were 41.4% in U.S. and non-U.S. stocks (Public Equity); 15.5% in Private Equity; 13.9% in Real Estate; 11.2% in Fixed Income; 8.4% in Risk Mitigating Strategies; 6.3% in Inflation Sensitive; 1.7% in Strategic Overlay and Cash, and 1.6% in Collaborative Strategies.

About CalSTRS

CalSTRS provides a secure retirement to more than 1 million members and beneficiaries whose CalSTRS-covered service is not eligible for Social Security participation. On average, members who retired in 2022–23 had 25 years of service and a monthly benefit of $5,141. Established in 1913, CalSTRS is the largest educator-only pension fund in the world with $341.4 billion in assets under management as of June 30, 2024. CalSTRS demonstrates its strong commitment to long-term corporate sustainability principles in its annual Sustainability Report.

Alright, I covered CalPERS' fiscal 2024 results here and think it's only appropriate to also cover CalSTRS as they are two giant US pension funds people track closely.

It's the same story, global public equities which represent 41% of the overall portfolio delivered 19% return in fiscal 2024 and private equity which represents 16% of the portfolio delivered a decent return of 8.6% in fiscal 2024.

Collaborative Strategies, with a portfolio return of 14.4%, was also a strong performer beating its benchmark of 8.8%  but these strategies only represent 1.6% of the total portfolio (they co-invest to lower fees). This is where Scott Chan, CalSTRS' new CIO, will focus his attention going forward.

On the flip side, offices continued to weigh on real estate returns, down 9.8% last fiscal year but outperforming its benchmark.

While the results were solid, overall CalSTRS, just like CalPERS, remains underfunded with 75.9% of the assets to cover future liabilities.

It's not a disaster but if we get another global financial crisis where rates decline precipitously and assets get clobbered, that funded ratio will deteriorate which is why Scott Chan and his investment team want to mitigate downside risk as much as possible.

In other related news,  CalSTRS recently announced the appointment of June Kim as senior investment director of total fund management:

Kim has been promoted within CalSTRS to this position.

Formerly the director of Global Equity, Kim now serves as the senior leader over the Total Fund Management Division. This is a new position.

Kim will report to Chief Investment Officer Scott Chan.  

"I'm excited to work with June in her new senior leadership role," Chan said. "June has nearly three decades of combined investment experience in the public and private sectors and has proved herself to be an excellent leader in her time at CalSTRS. I am confident that her expertise and commitment to our mission will continue to strengthen the financial future of California's public educators."

Senior investment directors make decisions that significantly affect the Teachers' Retirement Fund, advise the chief investment officer on sophisticated portfolio management strategies and decisions, and make tactical and strategic investment recommendations.

In her new position, Kim's responsibilities will include:

• Overseeing portfolio construction, asset allocation, balance sheet management and investment risk across the total fund.
• Assisting with strategic goals and objectives, asset allocation, business plans and budgetary planning.
• Developing and overseeing cross-asset investment strategies and initiatives.
• Assisting in the coordination of Investments Branch reports and plans with the CalSTRS strategic plan and risk management plan.
• Serving as the lead for the CalSTRS Asset Allocation study.

For 10 years, as the director of Global Equity, Kim was responsible for managing the CalSTRS Global Equity Portfolio.

Her duties included:

• Providing investment expertise to senior management and the Investment Committee.
• Formulating and recommending investment policies and strategies.
• Leading staff in the research, analysis and portfolio management of the Global Equity Portfolio.

During Kim's tenure as the director of Global Equity, the team expanded its internal management capabilities to non-U.S. developed and emerging markets and significantly increased the amount of assets managed internally, resulting in meaningful cost savings. She will continue to work with the Global Equity team until a new director of Global Equity is hired.

Kim chairs the diversity steering committee for the Investments Branch, which oversees the diversity, equity and inclusion (DEI) efforts in the branch and with investment industry partners. As part of her role, Kim led the planning team for the CalSTRS "Beyond Talk" event for five years, collaborating with key investment managers on a workshop that shares research and practical steps leaders can take to benefit from increasing the diversity of their teams.

"I am grateful to have had the opportunity to lead the terrific Global Equity team and am confident they will continue to thrive," Kim said. "I look forward to this new opportunity working with the CIO to build out the CalSTRS Total Fund Management Division to enhance value to the total fund. I also remain committed to continuing my work to increase diversity in the institutional investment community as I firmly believe it will help improve the industry."

Prior to joining CalSTRS, June worked for seven and a half years at the Los Angeles County Employees Retirement Association. She also worked in the private sector for 11 years in asset management and institutional foreign exchange.

In addition to her more than 28 years of experience in the investment industry, Kim has a bachelor's degree in business economics from the University of California, Los Angeles. She is a 2019 Finance Leaders Fellow of the Aspen Institute and a member of the Aspen Global Leadership Network.

That is a solid appointment, a well-deserved promotion for June Kim, and she will be instrumental in helping Scott Chan with his duties.

What else? Back in February,  highlights long-standing commitment to sustainability, resiliency in  its 2022–23 Sustainability Report, an annual snapshot of organizational sustainability.  You can read details here.

Lastly, Congratulations to CalSTRS' CEO Cassandra Lichnock, who has been named to the Forbes 50 over 50 list for Investment. Read the article here.

Below, I embedded CalSTRS' Investment Committee board meeting that took place two months ago on May 1st.

And Jeffrey Gundlach, DoubleLine Capital CEO, joined 'Closing Bell' on Thursday to discuss the Fed rate decision and Chair Powell's dovish comments.