CalPERS reports $29 billion loss for the year, worst performance since Great Recession

The California Public Employees’ Retirement System announced its first annual investment loss since the Great Recession on Wednesday, reporting a preliminary drop of 6.1% for the fiscal year that ended June 30.

Stocks and bonds lost the most value among the pension fund’s holdings, following global trends, according to a CalPERS statement. Private equity and real estate investments gained, helping avoid a larger loss, the statement said.

The loss left the fund with a year-end value of $440 billion, or 72% of what it would need to pay all its long-term obligations. That’s down from 80% a year ago, when the fund was worth $469 billion.

CalPERS is the largest public pension system in the U.S., providing pensions for about 2.1 million state and local government employees, retirees and beneficiaries.

The system’s investment target for the year was a 6.8% gain. Falling short means California’s state and local governments will have to make up for the loss with money that otherwise might have been spent on roads, parks and other budget items.

CalPERS’ annual investment performance does not directly affect public employees’ pension contributions, since the long-term debts associated with pension underfunding are borne by public employers.

The losses follow a year of historic gains in 2021, when CalPERS earned 21.3% on its investments and public pensions.

Public market investments make up 79% of CalPERS’ portfolio, the system said Wednesday. The fund’s global stock investments lost 13.1% for the year, while fixed income investments — including treasuries and bonds — lost 14.5%, according to the release.

The fund’s private equity investments returned 21.3%. Its real assets, including real estate, infrastructure and forestland, returned 24.1%.

“This is a unique moment in the financial markets, and we’ve seen a deviation from some investing fundamentals,” Chief Investment Officer Nicole Musicco said in the release. “For instance, our traditional diversification strategies were less effective than expected, as we saw both public equity and fixed income assets fall in tandem.”

The system has been working to expand its private equity holdings, but has encountered setbacks, included the sudden resignation in 2020 of Chief Investment Officer Ben Meng.

Public pension plans across the country lost money due to the public market volatility of the last fiscal year, according to an analysis by the New York-based nonprofit Equable Institute.

The nonprofit recently estimated the plans lost an average of about 10.4%. Last year, the plans’ gains averaged about 25%, according to Equable’s analysis.

In 2009, CalPERS reported an annual loss of 24%. In the course of the Great Recession, the fund went from having 101% of what it would need to cover all its long-term debts to just 61%. It has not returned to full funding since then.

This story was originally published July 20, 2022 at 10:34 AM.