CalPERS' CIO warned members of the pension fund's investment committee Monday that the six-year equity bull market that helped produce strong investment results is likely coming to an end.
Theodore “Ted” Eliopoulos said “more volatility and lower returns” can be expected from the equity portfolio of the $296.6 billion pension fund in the future.
“We need to prepare for extended periods of low returns,” Mr. Eliopoulos said.
Public equities produced a 24.8% return for the nation's largest pension fund for the fiscal year ended June 30, helping propel the retirement system to an 18.4% overall return. CalPERS' equity allocation is 63.3%.
It was the fourth year of double-digit overall returns in the last five fiscal years, following a severe loss of assets of around 25% during the financial crisis.
But the 2014-2015 fiscal year results, ending June 30, aren't shaping up to be as rosy. Volatility lowered CalPERS' 2014 calendar year equity returns to 4.6% and overall returns to 6.5%.
The lower equity returns are coming as CalPERS' real estate and private equity consultants are warning lower returns are expected for those asset classes in coming years.
Mr. Eliopoulos said Monday the advantage CalPERS has is that it is a long-term investor and it is able to ride out market lows. He said the pension fund's investment committee still believes there will be continued global economic growth, though at a modest pace, supporting CalPERS' large allocation to equities.
The California Public Employees' Retirement System, Sacramento, has a 7.5% assumed rate of return.