CalPERS reported a 2.4 percent profit Monday on its investments for the just-ended fiscal year, its lowest return in three years.
The performance is significantly below the pension fund’s official investment forecast of 7.5 percent, and could lead to another round of rate hikes for the state and the hundreds of local governments and school districts that belong to the California Public Employees’ Retirement System.
CalPERS officials, though, said a decision on rate increases is a ways off. They added that despite the low results for fiscal 2014-15, they’ve earned an average return of nearly 11 percent over the past five years and the pension fund isn’t in any immediate trouble because of one difficult year.
“We are a long-term investor,” said Ted Eliopoulos, the fund’s chief investment officer, in a conference call with reporters.
Choppy returns in the stock market held back the performance of CalPERS’ portfolio. CalPERS gained just 1 percent on its stocks, which make up 54 percent of the total portfolio of $300.1 billion.
Eliopoulos said the sparse returns on CalPERS’ stock portfolio were not a surprise in light of a strong run-up in prices the past several years. “We’re going on six years on a bull run in equity markets in the United States,” he said. “The prospects for returns are moderating.”
CalPERS’ investment performance has an enormous impact on the contribution rates charged to the state and local governments and school districts. CalPERS has been hiking those contributions by hundreds of millions of dollars annually in recent years to compensate for huge investment losses in 2008 and 2009, and to reflect larger government payrolls and predictions of longer life spans for current and future retirees.
Eliopoulos wouldn’t say if the latest investment results would bring more rate increases. “We have a whole other (rate-setting) process that will now take into account these returns,” he said. That process “will take some time.”
The 2.4 percent gain for the year that ended June 30 pales in comparison to the 18 percent profit earned a year earlier. While the stock holdings eked out minimal gains, the real estate portfolio earned a 13.5 percent return and private-equity investments earned 8.9 percent.
The pension fund was 77 percent funded as of a year ago, the latest data available. While CalPERS has plenty of money to pay retirees for now and the foreseeable future, the funding ratio means it has 77 cents in assets for every $1 in long-term obligations. Some experts say 80 percent is an adequate funding level, while others say pension systems should be 100 percent funded.