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California pension funds post big annual gains

CalPERS increased 20.7% and the fund overseeing benefits for the state's public school educators gained 23.1% in the fiscal year ended June 30, aided by stellar stock market and private-equity returns.

July 19, 2011|By Nathaniel Popper, Los Angeles Times
  • CalPERS Chief Investment Officer Joseph Dear
CalPERS Chief Investment Officer Joseph Dear (Los Angeles Times )

California's biggest pension funds reported that a booming stock market and private-equity gains helped them post their largest returns in over a decade.

The California Public Employees' Retirement System pension fund grew 20.7% in the fiscal year ending June 30, its best return in 14 years. The California State Teachers' Retirement System fund, known as CalSTRS, increased 23.1%, the best it has done in a quarter century.

Both pension funds, which rank as the two largest in the nation, have been in a period of recovery since massive losses during the financial crisis.

"It's a good year — CalPERS is clearly back, but we have a lot of work to do," said Joseph Dear, CalPERS chief investment officer.

CalPERS, the nation's largest pension fund, ended the fiscal year with $237.5 billion in investments under management. That's lower than the $260 billion high reached in 2007. The fund oversees benefits for 1.6 million current and retired government employees.

CalSTRS, which oversees benefits for 852,000 public school educators, finished with $154.3 billion in investments, below its 2007 high of $160 billion.

Both pension funds benefited from the stock market's revival since the depths of the financial crisis in March 2009, when major stock market indexes fell to 12-year lows.

CalSTRS' stock portfolio soared 31.9% while CalPERS' stocks rose 30.2%. The Standard & Poor's 500 index rose 28.1% over the same period.

The private equity portfolios at both funds also did well, increasing 25.3% at CalPERS and 22.5% at CalSTRS.

The results were tempered by lackluster returns in the funds' bond portfolios, which did well last year, and their real estate holdings, which continue to struggle. The bond portfolio increased 7% at CalPERS and 5.4% at CalSTRS. In nearly all categories the funds beat the benchmarks they set for themselves.

Pension funds across the country have been under scrutiny since the financial crisis as they have fallen behind in maintaining sufficient funds to meet current and future obligations to retired employees.

CalPERS and CalSTRS need returns of 7.75% per year to meet these obligations. Even with the recent year's good results, both funds have averaged returns below that rate over the last decade. This has put state and local governments on the hook to cover shortfalls, and has increased pressure on public employees to increase the contributions they make from their paychecks.

In January CalPERS said that under current projections it would only be able to cover 70% of its future obligations; revised projections were not available Monday.

The results announced Monday for CalPERS and CalSTRS were preliminary and subject to revision later in the year.

nathaniel.popper@latimes.com

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