CalPERS needs to earn 7.6% a year over the next 15 years to become fully funded, but that might be just pie in the sky, one of the investment world's leading lights told the pension fund's board last month.
“You're not going to get a 7.6% return when the U.S. is seeing a subpar (economic) growth rate of 2(%) to 3%,” said BlackRock Inc. Chairman and CEO Laurence Fink. “You'll be lucky to get 6% ... maybe 5%.”
Mr. Fink was one of the outside speakers invited to address the board of the California Public Employees' Retirement System, Sacramento, during its biannual off-site meeting held July 27-29, where board members ponder big-picture issues.
Executives at the $178.1 billion system have projected it will need an annual asset return of 7.6% to be fully funded in 2024, assuming a 6% contribution growth rate and a 4.64% liability growth rate.
But Mr. Fink said he does not think that is possible, given the state of the economy.
To achieve that 7.6% return, CalPERS would need a much more global portfolio and might also have to increase its contributions, Mr. Fink said. Otherwise, the only recourse is to lower its return target, he said. — Pia Sarkar
The somber words were not a complete surprise to the CalPERS board. CIO Joseph Dear had already acknowledged a tough road ahead. “It's not realistic to expect our investment office to earn our way back,” he said at the meeting.
CalPERS recently reported a 23.4% decline in its portfolio's investment performance for the fiscal year ended June 30, the greatest single-year decline in the fund's 77-year history.
