California teachers’ pension fund reports record-high investment gains. Here’s what that means

CalSTRS on Monday reported a 27.2% return on its investments for the fiscal year that ended in June, a record high driven by a booming stock market and private equity gains, according to a news release.

The return drove the total value of the California State Teachers’ Retirement System’s investment fund to $308.6 billion, according to the release, up from $246 billion a year earlier.

“We’ve built our portfolio for long-term performance, but this year’s results were nothing short of spectacular,” Chief Investment Officer Christopher Ailman said in the release. “These are record-breaking numbers — the highest returns we’ve seen since the late 1980s.”

The return nearly quadrupled the fund’s target of 7% for the fiscal year ending June 30.

The system, which administers retirement benefits for about 975,000 teachers, retirees and beneficiaries, is the second-largest state-run pension system in the U.S., after the California Public Employees’ Retirement System.

CalPERS also reported a big year, closing it out at $469 billion with a 21.3% return.

The record-high returns follow a volatile year during which stocks initially plummeted as a result of the coronavirus before rebounding to new record highs as corporations thrived and the federal government took actions to stimulate the economy.

CalSTRS’ stock holdings grew 41.8% for the year, while its private equity investments returned 51.9%, according to the release.

CalPERS’ stocks increased by 36.3% while its private equity investments gained 43.8%.

Both pension systems are underfunded, lacking the assets to cover all of their long-term obligations.

CalPERS’ big year boosted its funded status to 82%, up from about 71% a year earlier, meaning the system has 82% of the assets it needs to cover all of its obligations.

CalSTRS hasn’t recalculated the total value of its long-term obligations, so it hasn’t updated its funded status, spokesman Thomas Lawrence said in an email. In June 2020, CalSTRS had about 67% of the assets it needed to cover all of its long-term obligations.

The teachers’ retirement system charges schools extra each year under a plan to pay down the long-term debts and reach 100% funding by 2046. When the system falls short of its annual 7% target, schools have to pay more.

At CalPERS, the year’s abnormally large return triggered a policy, known as risk mitigation, that will reduce that fund’s annual target to 6.8% from 7%, a change that affects government employers and employees.

CalSTRS doesn’t have a similar policy, Lawrence said in the email.