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CalSTRS reports 12.3% gain on investments

After two years of losses, the California teachers pension fund posts an annual profit.

July 20, 2010|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento —

For the first time in three years, California's second-largest public pension fund reported positive annual earnings.

The $130-billion California State Teachers' Retirement System posted a 12.3% return Monday for the fiscal year that ended June 30, a step toward recovering from steep losses during the recession. The CalSTRS portfolio lost 25% of its value in its previous fiscal year and dropped 3% for the 2008 fiscal year.

"We've taken steps to position the portfolio for long-term growth, but we're not out of the woods yet," said Christopher J. Ailman, CalSTRS' chief investment officer.

"The American economy suffered a near-death experience in 2008, and it's going to take some time to fully recuperate from that," he said. "This year's performance is a solid start alonSg that road to recovery."

CalSTRS' portfolio garnered gains of 14.5% for global equities, 12.3% for fixed income and 21.7% for private equity and a loss of 12.4% in real estate.

The good performance exceeds a benchmark: On average, the fund needs an 8% annual return rate to meet its obligations to current and future retirees, according to CalSTRS actuaries.

But critics noted that surpassing the target for one year doesn't translate into success every year. The CalSTRS board is considering lowering the target rate to 7.5%.

The lower assumed rate would make it more difficult to deal with a $43-billion shortfall that was projected a year ago, when the retirement system's assets amounted to only 77% of its future pension payouts. Experts have set 80% of total obligations as a minimum amount required for a more financially sound system.

Independent actuaries said the level could fall to as low as 13% by 2039 and zero by 2045 if the Legislature and governor do not approve a CalSTRS request to increase the contributions paid into the fund by school districts, the state and community colleges.

For the fiscal year, CalSTRS' portfolio outperformed the bigger California Public Employees' Retirement System. The $200-billion CalPERS released preliminary results last week, saying it gained 11.4%. CalPERS lost 23.4% the previous year.

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