California’s second largest public pension fund beat its investment goals for the second year in a row, officials reported Friday, due in large part to rising U.S. and global stock markets.
The California State Teachers’ Retirement System reported a net return of 8.96 percent on investments for the 2017-18 fiscal year that ended in June.
That’s a better return than the 7 percent CalSTRS counts on earning every year. It’s a slightly better than the 8.6 percent return that the larger California Public Employees’ Retirement System earned over the past 12 months. Both funds beat their targets for two straight years.
In a statement, CalSTRS Chief Investment Officer Christopher Ailman cautioned that the rate increase did not signal a long-term increase in the return rate.
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“We will rank high compared to similar funds, but it is only one year,” Ailman said. “We need to repeat that performance year in and year out, on average, over the next 30 years. No small feat, but our award-winning staff and our complex portfolio are designed to do just that. This is a marathon, not a sprint to the finish line.”
He also warned that the the threat of a trade war with China could pose a threat to the positive returns in stock markets. Since January, the US market has seen a positive growth but has been less stable.
The bond market curve has flattened, which historically has signaled a recession within 15 months, he said in remarks to the CalSTRS Retirement Board.
“Looking at history to me, this literally feels like the 1960s,” Ailman said. “I know we don’t have the Vietnam War, I know we don’t have college riots, but boy, the discontent in this country is palpable. And I don’t know how that ends, but it’s usually not positive.”
CalSTRS has about $224 billion, about 70 percent of what it would need to pay all of the benefits it owes to California teachers and retirees.
The California Retired Teachers Association celebrated the pension fund’s year.
“CalRTA applauds CalSTRS’ work to protect the retirement security of California’s educators,” said Angelique Hill, executive director of the California Retired Teachers Association, in a statement to the Bee. “Our entire state benefits from a strong public education system, including providing retirement security to educators. Once they leave the classroom retirees contribute millions of volunteer hours and billions in economic activity each year.”
Even though CalSTRS recorded two consecutive years of better-than-expected returns, it’s still underfunded and many school districts are struggling with the rising cost of providing pensions to teachers.
CalSTRS has been increasing the amount of money it collects from school districts over the past four years. By 2020, they’ll be expected to kick in a sum equivalent to 19.1 percent of each teacher’s wages to fund pensions.
Derick Lennox, a lobbyist who represents school districts and superintendents, said that the positive return rate was a good sign for school districts.
“From the perspective of a school district, it is a big deal that CalSTRS surpassed its investment return assumptions,” Lennox said in a written statement. “Healthy investment returns are essential to not only protect employee retirement benefits in the long run, but also protect local district budgets in the short run.”
Editor’s Note: This story was updated at 1:07 p.m. on July 20 with a statement from Derick Lennox.