CalPERS' investment committee was given new 10-year investment assumptions at its meeting Monday that lower expected investment returns from stocks and private equity and raise expected returns from fixed income.
The estimated returns for the quarter ended June 30 from consultant Wilshire Associates lower the expected return from U.S. stocks to 7.25% from 7.75%; global stocks, to 7.5% from 8%; and private equity, to 10.45% from 10.75%. Wilshire made its previous estimates for the quarter ended March 31.
Public and private equity combined makes up about 65% of CalPERS' portfolio, but 90% of the risk, according to Michael Schlachter, a managing director at Wilshire.
Fixed-income assets make up about 17% of the portfolio and 4.86% of the risk.
In fixed income, the expected return for core bonds was raised to 3.75% from 3.25%, and high-yield bonds, to 5.35% from 5.15%.
The return assumptions come as the investment committee for the $264.6 billion California Public Employees' Retirement System, Sacramento, will be deciding by the end of 2013 its asset allocation for 2014, 2015 and 2016. In addition, CalPERS' investment committee is scheduled to decide by February its expected rate of return for 2014 through early 2017.
Data released at Monday's meeting by Wilshire show its change in investment return assumptions would result in an estimated reduction of one basis point in the pension fund's overall return compared with its March 31 estimate; the new estimate is that CalPERS will earn 7.31% annually over the next 10 years instead of 7.32%.
CalPERS' current return estimate is 7.5%.