LPs Report High Pension Returns

Things are looking brighter for California pensions as two of the country’s largest pension systems posted gains that bring them to record asset levels. And they owe private equity a lot of credit.

The California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), each posted double-digit returns for the past fiscal year.

CalSTRS reported an 11% return on investments for the year ended June 30, with about $129 billion in assets under management. All but one asset class beat their market benchmarks for the year.

CalSTRS’ alternative investments portfolio, which has about $6.2 billion in assets, was its best-performing asset class, bringing in a return of nearly 25%, which the pension system says is more than 18% above its performance benchmark.

CalSTRS’ Director of Alternative Assets Real Desrochers said in a statement that the pension system’s “disciplined selection of general partners and consistent, diligent process” is what helped create the successful returns.

Real estate was CalSTRS’ second-best performing asset class, bringing in a return of 18.4%. Only Non-U.S. equity did not bring a positive return. CalSTRS’ ended this past fiscal year with a 4.8% allocation to alternative investments.

CalPERS, meanwhile, reported that it earned a 12.7% investment return for the year ended June 30. The pension system’s investment assets are worth nearly $190 billion.

CalPERS greatest performing asset class was real estate, which boasts a return of almost 38%, more than double its 15% benchmark. The pension system’s alternative investment program generated a 22.8% return. It had a benchmark of 14.2 percent. The pension giant’s alternative assets division manages about $8.5 billion.

CalPERS and CalSTRS are the first and third biggest pension funds in the country, respectively. The Florida State Board of Administration is the second largest public pension fund with $130 billion in assets as of the end of fiscal year 2004.

CalPERS is a limited partner in funds managed by Blackstone, the Carlyle Group, Lexington Partners, Prism Venture Partners and U.S. Venture Partners.

CalSTRS has invested in funds managed by InterWest Partners, New Enterprise Associates, Oaktree Capital Management and Summit Partners.

Email Matthew.Sheahan@thomson.com