The California State Teachers’ Retirement System’s (CalSTRS) has outperformed its real estate benchmark, a year after warning that capital appreciation in the asset class was expected to stall.
The $236.9bn (€209bn) pension fund said it generated an 8.2% real estate return over the 12 months to 31 March 2019, outperforming its benchmark by 170bps.
The results were revealed 12 months after CalSTRS predicted that it could maintain its return objectives for the asset class despite forecasting capital appreciation to slow or even stop.
At the time, the pension fund accurately predicted that its real estate investments would return between 7% and 9% during the fiscal year ending 30 June 2019 (real estate and private equity returns lag the rest of the portfolio by three months).
IPE Real Assets reported last year that the pension fund had set an absolute return objective of 7.7% and a relative return objective to outperform the NFI-ODCE benchmark by 70bps. CalSTRS beat both objectives, with the NFI-ODCE index returning 6.55%.
CalSTRS outperformed in all of its asset classes over the 12-month period, generating an overall return of 6.5%, 30bps above its benchmark.
Its inflation sensitive portfolio – around two thirds of which are made up of infrastructure investments – returned 6%, outperforming its benchmark by 360bps.
“It was a roller coaster year and a very challenging environment in which to generate returns,” said CIO Christopher Ailman.
“Thanks to the in-house expertise of our investment team, we were able to come very close to our assumed rate of return despite the instability of the market.”
CalSTRS also said that, over the next 12 months, it will be “expanding its efforts” in its “collaborative model”, which it described as “an internally-led approach” to identify “higher-return, lower-cost strategies”.
Earlier this month, the pension fund said it planned to co-invest in real estate with other large institutional investors. In May, Paul Shantic, head of inflation sensitive investments, told a conference in London that the pension fund intends to hire more staff to analyse infrastructure assets internally.