California

CalPERS narrowly misses its annual investment target

What is CalPERS? We explain in one minute

CalPERS, California Public Employees Retirement System, aims to build retirement and health security for state workers. Here's a quick look at the retirement system.
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CalPERS, California Public Employees Retirement System, aims to build retirement and health security for state workers. Here's a quick look at the retirement system.

California’s largest public pension fund narrowly missed its investment return goal over the past year.

The California Public Employees’ Retirement System reported Thursday morning that it earned a 6.7 percent return on its investments for the last fiscal year, which ended on June 30.

CalPERS’ annual investment target is 7 percent, and missing the goal over time could raise pressure on public agencies to set aside more money for employee retirement plans.

“This was a very volatile year for financial markets, but I’m pleased with how we focused on the performance of the total fund,” Yu Ben Meng, CalPERS chief investment officer, said in a statement Thursday.

The return rate rebounded quickly over the last several months after dropping during a stock market slump at the end of last year. The return rate was 1.62 percent at the end of February, and Meng estimated based on historical probabilities that the fund had only a 30 percent chance of meetings its target.

“We saw good returns in several key areas,” Meng said in a statement released on Thursday. “Our long duration fixed income portfolio contributed positively as interest rates fell. And we are pleased with the outcome of some allocation changes made during the year.”

CalPERS reported $370 billion in total assets at the end of the fiscal year, up from $354 billion a year ago.

CalPERS estimates its assets are worth about 70 percent of its total obligations to California public employees and retirees.

The pension fund generated a 7.7 percent return on private equity investments, and 6.1 percent on public equity returns. It also reported 3.7 percent on real assets, which include real estate and infrastructure.

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CalPERS recorded an 8.6 percent investment return in the 2017-18 financial year, and 11.2 percent in the 2016-17 financial year.

CalPERS missed its earnings target in 2015-16, when it recorded a .61 percent return.

Despite falling short of the target, Meng characterized the earnings as a success.

“While we did not achieve our 7 percent actuarial return target this fiscal year, I can’t stress strongly enough that we are long-term investors,” Meng said. “We make decisions based on an investment horizon that stretches across years and even decades. That’s our focus, and we will continue to analyze all aspects of our portfolio to see how we can generate higher risk-adjusted total returns for our members.”

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