The red-hot financial markets have cooled in the past year, and California’s pension funds are paying the price.
CalSTRS said Friday it earned 4.8 percent profit on its investment portfolio in the just-ended fiscal year, its lowest gain in three years. The results fell short of the teachers’ pension fund’s target of 7.5 percent, and come as CalSTRS is still working to get back on its feet financially after the 2008 crash. CalSTRS earned 18.7 percent a year earlier.
The CalSTRS investment figures were released four days after CalPERS reported similarly weak results of 2.4 percent. The two pension funds’ difficult year could strengthen political arguments for those seeking a statewide ballot initiative to overhaul the public pension systems.
The market crash of 2008 left CalSTRS significantly underfunded and prompted the Legislature last year to approve a financial rescue package designed to gradually erase the funding gap. School districts, the state and teachers themselves will pay billions more each year to shore up the finances of the California State Teachers’ Retirement System.
CalSTRS reported in April that it is 68.5 percent funded. While it has enough cash to meet its pension needs for the foreseeable future, it has only 68.5 cents for every dollar of long-term obligations.
Despite the disappointing investment results, CalSTRS said there was no reason to panic. “Thinking beyond the short term is the cornerstone to the success of a large, mature pension system like CalSTRS, and the current year’s performance will not adversely impact the long-term financial health of the system,” said CalSTRS Chief Executive Jack Ehnes in a prepared statement. “Coupling realistic long-term investment returns with the gradual, sensible and fair funding plan enacted by the governor and the Legislature last year best serves our member-educators.”
The chief culprit in the latest investment results: the stock market, which posted modest gains. CalSTRS earned just 3.1 percent on its stocks in the 2014-15 fiscal year. Its biggest gainer was its real estate holdings, which earned 13.4 percent.
“It’s important to keep in mind that our investment horizon is 30 years and that any single year’s over- or under-performance will not make or break us,” said CalSTRS Chief Investment Officer Chris Ailman in a prepared statement. “The six-year bull market is admittedly long in the tooth, and since the majority of our assets are in stocks, our portfolio will reflect that larger reality.”
CalSTRS’ total portfolio comes to $191.4 billion.