UPDATE 2-Calpers says earned 11.8 pct return last year

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SAN FRANCISCO Jan 20 (Reuters) - Calpers, the biggest U.S. public pension fund, said on Wednesday it posted a return of 11.80 percent on its investments last year, roughly half the returns posted by major stock and bond indexes.

Calpers, the California Public Employees' Retirement System, said its total assets at the end of the 2009 calendar year stood at $203.3 billion, marking a recovery of more than $46 billion since March.

"Last year was a wild ride for all investors, but we finished very strong," Calpers' chief investment officer, Joe Dear, said in a statement. "Now we're in a strong position to take full advantage of any financial upturn in 2010."

Wall Street in 2009 had its best gains since 2003, with the Standard & Poor's 500 index up by 23.5 percent. U.S. corporate bonds and high-yield, or junk, debt posted returns of 26 percent in 2009, according to Bank of America/Merrill Lynch index data.

Calpers said its 20-year investment returns remain steady at 7.75 percent, an assumed rate of return needed to pay future pension benefits for California's public-sector workers.

Calpers' ability to maintain that level of investment return came under question last year because of the dramatic turmoil in financial markets, prompting critics of California's pensions to call for less generous and less expensive retirement benefits for future public employees.

Governor Arnold Schwarzenegger backs changing California's pensions to reduce their cost to the state government, and activists are seeking to put overhaul measures to voters.

The best performing asset class for Calpers last year was its Global Equity portfolio. It posted a 35 percent overall return, led by a more than 43 percent gain in international stocks. U.S. equities gained 28 percent.

Calpers' Global Fixed Income portfolio gained 14 percent while its Inflation Linked Asset Class, which includes infrastructure, commodities, inflation-linked bonds and forest lands, rose almost 5 percent.

Real estate and private equity disappointed, suffering 47 percent and 6 percent losses through the first nine months of 2009. Their reported returns lag year-ending results by a quarter.

"We took some very tough medicine in real estate last year," Dear said.

"We're aggressively examining our portfolio and getting rid of the investments that don't meet our expectations," he said, adding that, "We believe there will be some real opportunities to invest in income-generating properties at good discounts."

(Reporting by Jim Christie; Editing by Diane Craft)