Four of the nation's largest state retirement systems reported sparse investment returns for 2011, with CalPERS, the nation's largest defined benefit plan, gaining only 1.1%.
The return for the $226.5 billion California Public Employees' Retirement System, Sacramento, was well below its 7.75% rate of return assumption.
Among other plans, the California State Teachers' Retirement System returned 2.3% on its investments in 2011, while New Jersey's pension funds returned 1.7% and the North Carolina Retirement Systems, 2.12%.
“The year was marked by extraordinary volatility,” Joseph Dear, CalPERS chief investment officer, told the CalPERS board Jan. 23 at a retreat meeting in Monterey, Calif.
Mr. Dear said CalPERS had been doing very well in the first half of the year; the investment portfolio was up by about 20%. But the volatility in the remaining part of 2011 erased most of the gains, he said.
For the year, CalPERS' real estate portfolio was one of the biggest losers in comparison to its benchmark. While the portfolio had a 9.92% return, that was more than 400 basis points below the custom benchmark's 14.22%, according to statistics released by CalPERS.
Public equities returned -12.3%, compared to a -12.21% custom benchmark; fixed income returned 12.38%, compared to a custom benchmark of 13.91%. CalPERS' absolute-return strategies returned -2.29%, compared to a custom benchmark return of 5.6%. However, private equity returned 12.37%, compared to the custom benchmark's 1.38%.
The gains at the $144.8 billion CalSTRS, West Sacramento, came despite a loss of $7.9 billion, or about 5.5% of its value, in the second half of the year.
Real estate had the highest return among CalSTRS' asset classes last year, at 15%, followed by private equity at 9.9%; inflation-sensitive asset class, 9.2%; liquidity (cash), 8.3%; fixed income, 7.2%; U.S. equity, 0.9%; and non-U.S. equity, -14.1%. The real estate and private equity returns are for the year ended Sept. 30, said spokesman Ricardo Duran.
“We continue to feel the effects of the most precarious markets in decades,” Jack Ehnes, CalSTRS CEO, said in a statement. “Even though overall we've earned positive returns, the numbers reinforce the fact that CalSTRS cannot rely solely on investments to restore the fund's long-term viability.”
CalSTRS' actual allocation as of Dec. 31 was 49.9% global equity, 19.7% fixed income, 14.7% private equity, 13.5% real estate, 1.1% cash and 1.1% inflation sensitive.
The target allocation was 53% global equity, 20% fixed income, 12% each private equity and real estate, 2% inflation sensitive and 1% cash.
In New Jersey, gains from debt, private equity and real estate investments tempered losses from global stocks.
International equities lost 18.3%, while investments in U.S. fixed-income gained 15.1%, according to a report to the New Jersey State Investment Council, Trenton. Real estate returned 13.7% and private equity returned 13.3%, according to data from the state Division of Investment, which oversees the state's $67.2 billion in pension assets.
Last year's return was short of the system's 8.25% assumed rate of return.
The funds returned 18% in the 12 months ended June 30, and have an annualized 10-year return of 5.1%.
The value of the pension assets had been $69.6 billion as of Oct. 31. It's down 3.4% in the fiscal year that began July 1, through Dec. 31, according to the investment reports.
Gains at North Carolina, with $71.8 billion in assets, were powered by its fixed-income portfolio, which returned 10.82% for the year, state Treasurer Janet Cowell reported Feb. 3. The systems' public equity portfolio returned -6.99%; real estate, 12.25%; alternatives, 11.85%; credit portfolio, 2.22%; and inflation portfolio, 5.54%.
Bloomberg News contributed to this story.