CalPERS reports one of strongest years of investment returns over the last decade
.JPG "The California Public Employees’ Retirement System, or CalPERS, headquarters buildings in downtown Sacramento are photographed on Sept. 16, 2021.")
California’s largest public pension system reported on Monday a net investment return of 14.8% over the last 12 months, one of the strongest years in the last decade.
Bolstered by a particularly successful year in the stock market, the California Public Employees’ Retirement System now has 85% of the money to cover its future pension benefits, CEO Marcie Frost announced Monday morning at the board of administration’s offsite meeting in Monterrey. The reported returns are still preliminary and will be finalized in the coming months.
The massive pension fund’s assets totaled more than $637 billion as of June 30, the end of the fiscal year. The strong returns, which were led by public and private equity, were higher than last year’s returns of 11.6% and the assumed rate of return of 6.8%.
The retirement system’s funded status has improved since 2016, when the Public Employees’ Retirement Fund had less than 70% of the money needed to pay retirement benefits.
“An 85% funded level is great compared to where we started, but we’re not quite there yet. It’s not full funding,” Frost said during her opening remarks. “We cannot afford to become complacent or assume the market will always keep rising just because it did yesterday.”
Improved status is result of several changes
Frost, who has been with CalPERS for ten years, said that the system’s improved financial standing is a result of several changes, including decreasing the discount rate and diversifying the fund’s portfolio.
CalPERS’ discount rate, which is the fund’s assumed rate of return, was lowered to 6.8% in recent years.
“These were hard decisions because they meant employers and members would pay more into the retirement and would not be receiving additional benefits for those increased costs, but they were necessary decisions to support the pensions rightfully promised to our public employees for their years of service,” Frost said.
Of the pension fund’s asset classes, public equity performed the best with a preliminary return of 24% over the last fiscal year. Behind that asset class, private equity investments resulted in a 17% return.
“We have greatly benefited from the fact that the stock market has continued to rise. Our global equity portfolio still makes up the largest single category of the fund,” she said.
The fund’s other investment categories, private debt, real assets and fixed income, reported investment returns of 11%, 6.3% and 5.9% respectively.
‘Tuning out the noise’
Frost thanked the board for “tuning out the noise” related to CalPERS’ private equity investments, which have come under criticism from stakeholders and California lawmakers in recent years. Those critiques included a recent independent investigation, funded by a group of CalPERS retirees, of the fund’s private equity investments. That report blamed the pension fund’s underfunded status on systemic “governance failures” and paying Wall Street managers too much money to handle private equity investments.
In her comments, Frost singled out a bill that died earlier this session, which would have required public pension funds in California to disclose information about its investments in private equity. She said that legislation would have hampered CalPERS’ ability to invest in private markets and could have led to increased costs for members and employers.
“Investing in the private markets gives us potential to earn higher returns while spreading our risk from the often volatile public stock market,” Frost said.
