CalPERS says annual return jumps to 11.2 percent from 0.6 percent

(Reuters) - The California Public Employees’ Retirement System reported on Friday a preliminary 11.2 percent net return on investments for the fiscal year that ended June 30, up sharply from last year’s return of 0.6 percent due to a boost from equities.

FILE PHOTO: A view of California Public Employees' Retirement System (CalPERS) headquarters in Sacramento, California, U.S. February 14, 2017. REUTERS/Max Whittaker/File Photo

The performance of CalPERS’ public equities, or stock portfolio, topped the S&P 500 benchmark of major U.S. companies stocks, 19.7 percent to 15.3 percent. The private equity asset class returned 13.9 percent. Real estate had a preliminary net return of 7.6 percent.

The returns marked the first time CalPERS has exceeded its expectations since 2014. It also helped to raise the funded status to 68 percent from 65 percent the previous fiscal year, based on a 7 percent discount rate.

“I am proud of our investment team for achieving double digit returns this year,” said Ted Eliopoulos, CalPERS chief investment officer. “Our globally diversified portfolio performed well across most asset classes, and we were able to take advantage of what the market gave us.”

Eliopoulos warned that these preliminary returns are a one-year snapshot, and the fund’s “focus is always on the long-term. We invest for decades, not years.”

Among other asset classes, fixed income returned 0.3 percent to CalPERS, while inflation assets lost 2.7 percent.

The total fund returned 8.8 percent over the past five years, and 4.4 percent over the last decade. Over the last 20 years, the fund returned 6.6 percent.

The $323 billion pension fund, the largest in the country, has been under increasing pressure to achieve returns closer to the fund’s assumed rate of return of 7 percent by 2020. Adding to the challenges, CalPERS is cash negative, meaning it has been paying out more in benefits to retirees each year than it has been collecting in contributions from workers.

Investment earnings are typically the major revenue source for public pension funds, so lower-than-expected investment returns can lead to fund deterioration. To improve, pension funds either need to earn better-than-expected returns in the future, request higher contributions from current workers, or reduce retiree benefits.

“CalPERS is focused on the long-term sustainability of our system,” said Chief Executive Officer Marcie Frost. “Of course, we welcome this fiscal year’s strong returns, but we also remain about 68 percent funded and vulnerable to a downturn in stock markets. This will be our focus as we continue to move through the asset allocation process over the next six months.”

Reporting by Robin Respaut; additional reporting by Peter Henderson; Editing by Marguerita Choy and David Gregorio