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CalPERS returns are paltry

July 16, 2012|By Marc Lifsher
  • Atrium in CalPERS' Sacramento headquarters.
Atrium in CalPERS' Sacramento headquarters. (Rich Pedroncelli / Associated…)

SACRAMENTO -- The California Public Employees' Retirement System, the largest public pension fund in the country, posted a mere 1% return on its investment for the fiscal year that ended June 30.

The performance came in well below the fund's target of 1.7% growth in its $234.3-billion portfolio, said Joseph Dear, CalPERS' chief investment officer. The return for fiscal 2012 also was way below CalPERS' long-term growth strategy, which calls for a 7.5% average annual rate of return to pay for retirement benefits for more than 1.3 million members.

"The last 12 months were a challenging period for all investors and the ongoing European debt crisis and slowing global economic growth increased market volatility and reduced equity returns," said Dear.

CalPERS biggest losses were in public equity, down 7.2%, and private equity, down 5.4%. Fixed-income investments, mainly bonds, gained 12.7%, while real estate rose by 15.9% and infrastructure investments by 8.4%.

No substantial turnaround in the markets is likely this year, Dear predicted.

CalPERS' sister pension agency, the California State Teachers' Retirement System, also posted weak returns for its fiscal 2012, which ended June 30. But at 1.8%, they were better than CalPERS' performance.

The performance was well below the targeted 7.5% average annual return that the $150.6-billion CalSTRS fund uses to meet its obligations to provide pensions to 856,000 public school educators and their families.

CalSTRS' worst performance was in global stocks, with a loss of 3.1%. Real estate, however, showed a 9.2% gain, while private-equity investments gained 5.9% and fixed-income bonds rose 7.3%.

"This fiscal year has presented a very difficult market for long-term investors like CalSTRS, with wild fluctuations amid ongoing instability in Europe, slowing growth in China and India, a U.S. credit rating downgrade and a sluggish economy," said Chief Investment Officer Christopher J. Ailman.

Investment earnings alone won't put CalSTRS on a sound financial footing, said Chief Executive Jack Ehnes. The state Legislature, he said, needs to pass a law allowing for regular, gradual increases in contributions paid by the state and other CalSTRS participants.

CalSTRS, unlike CalPERS, does not have the legal authority to unilaterally increase contributions from its members, local governments and public employees.

Related:

CalPERS earns 1.1% on investments in 2011

CalPERS board OKs lowering assumed rate of return to 7.5%

Scathing report alleges corruption at CalPERS


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