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Consultants report to CalSTRS: long-term private markets outperformance persists; real estate allocation down from peak
Summary
Makita and other consultants told the CalSTRS Investment Committee their semiannual reviews show the total fund has outperformed a 70/30 reference portfolio over long horizons, private markets remain a source of excess return, and real estate allocations have dipped below target because appraised values fell from peak while public equities rose.
CalSTRS’ general consultant (Makita), the real estate advisor (RFA) and private-equity consultants presented semiannual oversight reports to the Investment Committee on March 12, 2025, highlighting long-term outperformance for the fund and sector-specific dynamics for real estate and private equity.
Makita reported the CalSTRS total fund returned 7.7% for the trailing one-year period (to Dec. 31, 2024), beating policy benchmarks by 70 basis points but trailing a simple 70% global equity / 30% fixed-income reference in that one-year window because public equities outperformed private markets in the period. Makita noted that over a 10-year horizon the fund returned 7.8% annualized, ahead of policy and peer medians. The consultant emphasized that returns through private markets have historically added value to CalSTRS’ total portfolio, and that the fund’s collaborative model and manager selection have produced significant fee savings and favorable long-term results.
Real estate advisors reported the real estate allocation declined to roughly 13.2% of the fund, about 200 basis points below the 15% target, driven in part by a roughly 20% decline in appraised real-estate values from peak while public equity values rose. RFA noted long-term outperformance versus benchmark on a 10-year basis, but underperformance in the one-year period tied to continued weakness in office and life-science office exposures. RFA’s speakers said staff is focusing on reallocating toward higher-growth sectors (industrial, multifamily) and reducing office and life-science concentration.
The private-equity consultants reported continued long-term strength for buyout and co-investment returns. CalSTRS’ private equity program has substantial scale and a large collaborative co-investment portfolio; co-investments continue to deliver attractive net returns and fee savings. Consultants noted slower distributions and fewer exits in recent periods, which has lengthened fundraising cycles and given limited partners more negotiation leverage. They also described how valuation multiple expansion in public markets has raised transaction prices in some private deals, a factor the committee should monitor.
Across the presentations, consultants and staff stressed the importance of manager selection, the fund’s collaborative/co-investment approach and the role of private markets in diversifying the total fund over long horizons. Committee members asked about aligning independent-fiduciary processes across asset classes; staff agreed to review consistency between real estate and private equity approaches and report back.
No committee action on allocations was taken during the public session; consultants will continue to provide semiannual reporting and staff will bring specific implementation proposals back as needed.
