CalPERS drops bond return assumption
By Randy Diamond | September 13, 2010 5:56 pm
CalPERS' investment staff reduced the system's 10-year capital return assumption for its fixed-income portfolio to an annualized 3.75% from 4.5%, according to documents released Monday at the system's investment committee meeting in Sacramento, Calif.
Staff at the $205.5 billion California Public Employees' Retirement System attributed the decline in capital assumptions to a decrease in fixed-income yields since June, spurred by an outlook by the staff and the system's consultants that medium-term growth and inflation has moderated.
CalPERS' staff had presented capital market assumptions on June 14, but according to the documents, the yield to maturity on the fixed-income long-liability benchmark portfolio was 4.36% as of that date and “this provided the primary input for the 4.5% assumed 10-year return assumption for fixed income.” But the memo noted that as of Aug. 19, the yield to maturity to the benchmark had fallen to 3.66%.
Over the same interval, the memo notes the yield's maturity on the 10-year Treasury note declined to 2.6% from 3.25%.
Fixed income makes up about 20% of CalPERS' overall portfolio. The assumptions will help the CalPERS board determine the system's next asset allocation, expected in November, and its rate of return, expected to be done by early 2011.