Last year’s losses at California pension systems were larger than initial reports showed

California’s two giant pension systems lost a couple billion dollars more than was previously reported in the volatile markets of the first half of this year.

The Public Employees’ Retirement System and the State Teachers’ Retirement System recently published more complete financial figures for the fiscal year that ended in June, incorporating private equity and real asset returns through the end of that month along with other factors including benefit payments and contributions. The adjustments happen every year.

CalPERS reported a -6.1% return for the fiscal year, but, with the additional return information and other factors included, the system’s net performance for the year was -7.5%. The adjustment means the system closed out the fiscal year with a total value of $439.4 billion, a drop from the previously reported figure of $440.2 billion.

CalSTRS, which reported a -1.3% return, ended the year with a reduction of its net position of -3.3% with the more recent returns and other factors taken into account, closing out the year at $300.1 billion rather than $301.6 billion.

Private equity and real asset performance figures are reported on a three-month lag. When the systems reported year end-performance for their entire investment portfolios as of June, they used March figures for private equity and real assets.

The July figures are the official book-of-record investment portfolio returns for the funds, but the more complete results are used in some important calculations, such as determining the size of the contributions the State of California and local governments must make toward CalPERS pension debts.

The more complete year-end figures became available at the end of September, and the pension systems posted them to their websites ahead of November board meetings.

Private equity and real assets — which includes real estate, timberland and other holdings — performed better than global stocks, helping curb losses at both funds.

But CalPERS’ private equity gain dropped from a return of 21.3% to 3.3% with the update. The real assets figure was steadier, dropping from 24.1% to 21.7%.

“As with other institutional investors, our private assets were not spared from the impacts of global turmoil and domestic economic volatility,” CalPERS Chief Executive Officer Marcie Frost said in a statement provided by a spokesman. “While the final numbers are informative, we remain focused on long-term performance and our members can be confident that their retirement is safe and secure.”

CalSTRS has not published updated return figures for specific asset classes.

Last year’s losses — the first losses each system reported since the Great Recession — followed uncommonly large gains the year before.

For the fiscal year ending June 2021, CalPERS reported a net gain of 22.4%, while CalSTRS logged a net 25.6%.

CalPERS aims for a 6.8% return each year on its investments. CalSTRS aims to earn 7%.

They are both long-term investors, but at CalPERS, investment losses mean higher pension bills for the state and for local governments two and three years later, respectively.

Over the last 10 years, CalPERS averaged 7.7% on its investments, while CalSTRS averaged 9.4%.

This story was originally published November 8, 2022 at 5:30 AM.