July 15, 2013 / 4:27 PM / 6 years ago

UPDATE 3-Calpers investments up 12.5 pct in latest 12 months

* Calpers’ return swamps previous year’s 1 percent

* Teachers’ fund reports 13.8 pct return

* Pension costs remain a worry for California local governments

PETALUMA, Calif., July 15 (Reuters) - The California Public Employees’ Retirement System, the biggest U.S. public pension fund, on Monday reported a 12.5 percent return on assets for the 12 months ended June 30, led by global equities and real estate holdings as results outperformed the fund’s own benchmark.

The fund, known as Calpers, said the return outperformed its internal benchmark by 1.5 percentage points and topped its 1 percent return for the year-earlier period. The result also was above its 7.5 percent return target used to set contributions from government employers in the most populous U.S. state.

Calpers’ sister fund, the California State Teachers’ Retirement System, on Monday reported a 13.8 percent return for the 12 months through the end of June.

Calpers’ yearly rates of return, once audited, will help determine contribution levels for state agency employers in fiscal 2014-15 and for contracting cities, counties and special districts in fiscal 2015-16, the pension fund said.

Public pension costs have become a major concern for governments across the nation amid lean revenue. The issue is acute in California, where public employee pensions have strong legal protections. Two California cities, Stockton and San Bernardino, filed for bankruptcy protection last year, in part because of soaring pension costs.

The California legislature last year approved bills aimed at reining in pension expenses after voters in San Diego and San Jose, the state’s second- and third-biggest cities, approved measures to clamp down on local pension costs.

Calpers, whose assets are worth about $260 billion, said its global equity and real estate holdings propelled much of the gain in its most recent 12-month period.

“Investments in domestic and international stocks returned 19 percent, outperforming the Calpers custom public equity benchmark by nearly a percentage point,” the fund said in a statement.

“Investments in income-generating real properties like office, industrial and retail assets returned 11.2 percent, outperforming the pension fund’s real estate benchmark by 1.4 percent,” the fund said.

The fund’s private equity portfolio posted a 13.6 percent gain while fixed-income assets lost 1.6 percent.

“This is solid performance,” Joe Dear, Calpers’ chief investment officer, told reporters. “For the past year we rode the markets up.”

Dear said Calpers’ most recent gain and its return of 11.1 percent over the past three years supported the fund’s strategy of having a diverse portfolio of assets and of sticking to its long-term investment strategy even when markets are roiled.

Fund officials at a meeting in Petaluma, California, said they are hopeful the economic recovery points to better times for the retirement system.

The value of the pension fund’s assets is hovering near the peak of about $260 billion set in October 2007. It sank to about $160 billion during the financial crisis.

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