CalPERS investment returns are in negative territory

The system has lost 1.9% during the five-month period beginning July 1

By Randy Diamond, Chief Investment Officer | The investment returns for the California Public Employees’ Retirement System (CalPERS) are in the red so far for the 12-month fiscal year that began on July 1, as slumping returns are occurring across asset classes, says acting Chief Investment Officer Eric Baggesen.

The results for the $345.6 billion pension plan, the largest in the United States by assets, are considered a bellwether for other public plans, almost all of which work on a July 1 to June 30 fiscal year. With many plans unfunded, if the investment returns don’t reverse, the 2018-2019 fiscal year could be the worst for pubic pension plans since the great financial crisis, adding to unfunded liabilities that total almost $2 trillion.

Baggesen didn’t given exact investment returns in detailing the low investment numbers to the CalPERS Investment Committee on Dec. 17, but CalPERS data from July 1 through Nov. 30 shows that the system lost overall a 1.9% during the five-month period.

The data does not include major price drops that have hit equities particularly hard since mid-November. The S&P 500 dropped 2.8% on Monday and declined more than 5% in the last 30 days.

CalPERS only has a funded ratio of 71% and hundreds of towns, cities [such as Fullerton], and special districts that are part of the pension plan are already facing contribution increases of up to 20% because of long-term subpar investment returns. This is combined with the fact that the number of CalPERS retirees is increasing compared to the number of active members making payments, creating cash shortfalls for the plan.

CalPERS returned 8.1% for the five-year period ending June 30, but 5.6% for the 10-year period, and 6.1% for the 20-year period.

CalPERS is in the process of lowering its return expectations from 7.5% to 7%.

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