The State Worker

CalPERS beats earnings target for first time in three years

California's pension agency sees money in water storage

CalPERS tries to make a splash with water bank investment north of Los Angeles.
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CalPERS tries to make a splash with water bank investment north of Los Angeles.

California’s main public pension fund beat its official investment forecast over the past 12 months, ending a two-year stretch of disappointing earnings.

The California Public Employees’ Retirement System rode a strong year in the stock market and private equity investments to earn a return rate of 11.2 percent for the fiscal year that ended June 30, the pension fund announced Friday morning.

That’s about double what CalPERS expected to earn this year.

It’s also a marked improvement over the previous year, when CalPERS’ investment return rate was 0.61 percent. In the budget year that ended in June 2015, CalPERS’ investment return rate was 2.4 percent.

This year’s high returns were celebrated by lawmakers and labor groups who have been pressured to answer for CalPERS’ steep unfunded liability.

CalPERS, which manages about $323 billion in assets, now has about 68 percent of the funds it would need if it had to pay all of the benefits it owes to retirees and public workers.

“Stronger than anticipated returns from CalPERS show that smart investing and strong oversight are a successful approach. While the system is not fully funded, these returns will have a positive impact over the long-term status of the system,” said Assemblyman Freddie Rodriguez, D-Chino, chairman of a committee that oversees CalPERS.

His counterpart in the Senate, Democrat Richard Pan of Sacramento, said he was “certainly happy to see the return for this year, but it’s not a year-to-year thing.”

“I don’t think anyone is saying ‘One year and we’re all set,’ ” he said. “It’s about the long term and we continue to take steps at the state government to be sure we keep our pension system sound.”

CalPERS gains were propelled by the stock market. It recorded a 19.7 percent gain on its public equity investments. That’s better than the 16.9 percent gain that the Dow Jones Industrial Average has recorded over the past 12 months.

The pension fund gained 13.9 percent on its private equity investments and 7.4 percent in real assets such as real estate and infrastructure.

California’s other major public pension fund, the California State Teachers’ Retirement System, is expected to reports its earnings next week.

CalPERS in December acknowledged that it had been earning lower-than-expected returns when it ratcheted down the so-called discount rate it charges to public agencies.

Previously, CalPERS assumed it would average 7.5 percent annual returns over time; it voted to lower the projection to 7 percent. As a result, it’s beginning to charge the state and local governments that belong to it more money to fund the pensions of their retirees and employees.

Sarah Anzia, a political science professor at UC Berkeley who studies public pensions, said the returns were good news but that CalPERS would continue to face difficult choices if it’s serious about eliminating its unfunded obligations.

“While 11 percent is great, it’s certainly better than .61 percent, it’s one year and they’re going to bounce around,” she said. “Does it suddenly make me much more confident that public pensions or CalPERS are on strong footing? No.”

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at