SACRAMENTO — The president of California's huge public pension fund, the nation's largest, expressed confidence Monday that the fund would see its way through the deepening global financial crisis -- even though it has lost $54 billion since July 1.
The California Public Employees Retirement System, known as CalPERS, had a total portfolio value of $185 billion on Friday, down 23% from $239 billion at the start of its fiscal year.
CalPERS expects to survive the falling market and credit crunch by applying the lessons it learned from the dot-com bust at the start of the decade, said President Rob Feckner.
"We're going to weather the storm and come out better than the last time," he said. "Then, we lost $50 billion and made back over $120 billion. I see us being in the same position this time."
Recent losses are larger in total value, but "percentage-wise, we're in better shape now than then," said Feckner, an employee of the Napa Unified School District, who is finishing his fourth year as head of the 13-member CalPERS board.
CalPERS is invested in stocks, bonds, real estate, private equity funds and, lately, commodities. Proceeds pay for health benefits as well as current and future pension benefits for 1.6 million state and local government and school district employees.
CalPERS "is taking hits across all asset classes," Feckner said. But the losses would have been even greater "if we had not spread our money out" by diversifying investments.
CalPERS' losses come during a difficult period internally for a fund that's operating without the benefit of either a chief executive or chief investment officer. A recruiting firm is evaluating three dozen candidates for the CEO post, which should be filled by mid-December, he said. The chief investment officer should be on board by mid-February, he said.
For now, working with interim executives, CalPERS is sticking with a strategy that leans heavily on stocks, which account for about 40% of its holdings. No decision has been made about shifting the investment mix -- possibly toward bonds and other fixed-income assets, Feckner said.
CalPERS is not scheduled to reevaluate its investment allocation until December, Feckner said. But he doesn't expect his experts to come up with any magic formula to quickly rebuild the portfolio. "At this point, I don't think anyone knows what a safe harbor looks like, so we'll stay the course."
In the meantime, Feckner hopes to pick up bargain stocks in the bear market.
CalPERS has earned a reputation as a "thought leader in the international investor community" going back years, said Michael Rosen, a principal with Santa Monica-based Angeles Investment Advisors. It has tremendous resources for managing its giant portfolio, he said.
But CalPERS, along with every investor large and small, faces "an extraordinary investment environment that is different than 2000-2002 in many respects," he added. "I'm not convinced that the markets will recover the way they did at the end of 2002 and into 2003."
Although a market turnaround could be a ways off, Rosen said he agreed with Feckner that "in this carnage, there are the seeds of some very attractive investment opportunities." He predicted that CalPERS, as a very sophisticated investor, should be able to capitalize on that.
But there could be stumbling blocks on the road to recovery. On Saturday, the Wall Street Journal reported that CalPERS had been forced to sell stocks and take losses to come up with the cash to pay its pension and healthcare bills as well as meet capital calls from real estate and private equity deals.
The fund has lost hundreds of millions of dollars this year on soured residential investments, including a stake in a 15,000-acre tract of land north of Los Angeles known as Newhall Ranch.
That partnership, LandSource Communities Development, filed for Chapter 11 bankruptcy protection in June. CalPERS paid $970 million in January 2007 for 62% of the project.
Feckner, however, denied that CalPERS was facing a cash crunch. "We have been managing liquidity the same, given market conditions," he said. "Cash is always part of our portfolio."