Volatility weakens CalPERS returns as CEO eyes more PE

  • $302 bln pension returns just 0.61 pct in fiscal year ending June 30
  • PE nets 1.7 pct for fiscal year, outperforming benchmark
  • CalPERS to continue paring down relationships in PE

California Public Employees’ Retirement System’s investment portfolio returned just 0.61 percent for the year ended June 30, preliminary returns released July 18 show.

“I was very proud to report on behalf of CalPERS a very modest positive return,” Chief Investment Officer Ted Eliopoulos said on a conference call. “It was a year of volatility and turbulence in the markets, so I’m very proud of our entire team.”

Choppy public markets and volatile economic conditions contributed to weak performance from the pension’s public equity and inflation-related portfolios, a press release said. Those assets, which represent 58 percent of CalPERS’s portfolio, kept the investment portfolio’s overall return well below its 7.5 percent assumed rate of return.

Private equity represented a bright spot for the $302 billion public pension. CalPERS’s PE portfolio returned 1.7 percent on the year, outpacing its benchmark by 2.53 percentage points, the release said. CalPERS measures its $26 billion PE program’s performance against that of a blended FTSE index, plus 3 percentage points.

CalPERS reports the PE portfolio’s returns on a one-quarter lag.

Last week, CalPERS Chief Executive Marcie Frost indicated that the pension may seek additional exposure to private equity to compensate for lower returns generated by other asset classes.

Frost, who previously led Washington State Department of Retirement Systems, was named as Anne Stausboll’s successor last week.

CalPERS has gradually reduced its relationship count with GPs over the past year. Certain relationships have been phased out as the retirement system declines to re-up. Staff also unloaded stakes in older funds on the secondary market.

Even if it were to expand its exposure to PE, CalPERS would continue to reduce the number of general partners managing the portfolio, Eliopoulos said on the call.

“We have some challenges to confront, both for ourselves and all institutional investors, moving into a much more challenging low-return environment. We’re going to need to look at all available alternative [asset class] options,” Eliopoulos said. “Private equity is an important part of our portfolio currently.”

CalPERS held 9.2 percent of its assets in PE as of April 30, according to its June meeting materials. The retirement system has a 10 percent interim target allocation to the asset class.

Action Item: CalPERS preliminary returns: http://bit.ly/2a3zQIu