CalPERS reports 11.4% gain on investments
Partly clawing back from steep losses during the recession, the country’s largest government pension fund said in a preliminary report Thursday that it gained 11.4% on its investments for its fiscal year.
The portfolio of the California Public Employees’ Retirement System was worth $200 billion on June 30, up from $181 billion a year earlier but still 23% below the fund’s all-time high of $260.4 billion on Oct. 31, 2007.
CalPERS missed its own performance benchmark of a 16.2% gain for the year, primarily because of a massive write-down of real estate values. Yet the returns were in line with other big public pensions. Last week, the $130-billion California State Teachers’ Retirement System announced a preliminary return of 11.9% for the fiscal year that ended June 30.
“With the exception of real estate, all of the asset classes had positive returns for the year,” said Joseph Dear, CalPERS’ chief investment officer. “We’re definitely in the recovery mode with the opportunity to capture future returns because of our long-term investment horizon.”
CalPERS reported gains of 19.5% in global fixed income, 30.9% in private equity, 14.4% in stocks and 2.7% in commodities, infrastructure and forestlands. Real estate lost 37.1%.
Final CalPERS numbers are expected to be released in mid-August.
The improved performance heartened long-time CalPERS watchers, who noted that the returns surpassed the fund’s annualized target of 7.75%, its average over the last 20 years.
“I don’t think you should expect to get out of the woods in one year. The historic drop in the market cannot be made up in 12 months,” said David Elder, a former state assemblyman who oversaw public pension fund activities.
But, he said, “it’s certainly good news for the taxpayers of California and the public agencies,” whose employees are among CalPERS’ 1.6 million members.
The good news comes a little late for the state government and about 1,000 school districts. On July 1, CalPERS raised its annual employer contributions by $700 million to put the retirement fund on a better footing to meet its long-term pension obligations.
Nevertheless, every dollar that CalPERS earns helps it pay for an unfunded liability of more than $100 billion and frees up state and local government revenues to provide public services, said David Crane, Gov. Arnold Schwarzenegger’s special advisor on jobs and economic growth.
“What matters are the returns over many years, not one year like this one when they’re up or one year like last year when they were down,” Crane said. “What people should care about is CalPERS’ returns over the long term.”
CalPERS’ average gain of 7.75% is unsustainable over the long haul, and the fund shouldn’t expect to average more than 6.15% a year, Crane said. He pointed out that the pension fund averaged an annualized return of only 3.5% over the last decade.
