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CalPERS posts 13.26% return, begins review of 7.5% return assumption

Joe Dear 175 px
Joseph Dear chief investment officer at California Public Employees' Retirement System

California Public Employees' Retirement System, Sacramento, earned 13.26% on investments in the year ended Dec. 31, a jump from the dismal 1% the retirement system earned in the fiscal year ended June 30, 2012, Chief Investment Officer Joseph Dear announced Monday.

While Mr. Dear said he was pleased with the improved performance, he noted the portfolio still performed 117 basis points below the $248.1 billion retirement system's custom benchmark for the calendar year.

Mr. Dear attributed the below-benchmark results to disappointing returns in the private equity portfolio, which had a 12.24% return in the period, compared with the custom benchmark's 28.4% return.

The CIO said CalPERS investment staff is in the process of reviewing the benchmark to determine if it's a fair guidepost to use.

Other key CalPERS asset classes were up in 2012: global equities had a 17.18% return compared with the custom benchmark's 17.08%; fixed-income rose 7.64%, vs. 6.9% for its custom benchmark; and real estate increased 12.79%, vs. 10.29%.

Overall, Mr. Dear said CalPERS is still suffering from the financial crisis in its longer-term returns. CalPERS lost 24% of the value of its portfolio in the 2008-2009 fiscal year.

Mr. Dear said five-year results ended Dec. 31 were an annualized 0.98%, compared to the benchmark return of 3.4%, while 10-year returns were an annualized 7.6%, compared to 8.3%.

Mr. Dear disclosed the results at CalPERS' winter retreat meeting in Monterey, Calif., on Monday as the board began a review of whether its 7.5% assumed annual rate of return is appropriate. No decision will be made until early 2014.

CalPERS lowered its rate of return to 7.5% from 7.75% in February 2012.

Investment committee members will need to determine if the current 7.5% rate of return is “achievable,” “desirable” and “appropriate” in the future, according to a report released Monday by Wilshire Associates, CalPERS' investment consultant.

The review will occur as the board also examines the asset allocation for the years 2014, 2015 and 2016.

CalPERS' investment committee is scheduled to determine the new asset allocation in December and the rate of return in early 2014.

CalPERS Chief Executive Officer Anne Stausboll told board members they will need to determine what CalPERS' risk tolerance is in determining its asset allocation.

Separately, the board on Monday also re-elected Rob Feckner to his ninth consecutive term as board president and George Diehr as vice president for his sixth consecutive term.