CalPERS returns 2.4% for fiscal year

CalPERS reported Monday preliminary investment returns of 2.4% for the fiscal year ended June 30, 5.1 percentage points behind its 7.5% assumed rate of return and 9 basis points below its custom benchmark.

Chief Investment Officer Theodore Eliopoulos, speaking at a CalPERS retreat meeting in Walnut Creek, Calif., attributed the poor returns to weak equity and fixed-income markets during the fiscal year. More than 70% of CalPERS' portfolio is allocated to equities and fixed income, magnifying performance problems for the year, he added.

Mr. Eliopoulos said key factors over the past 12 months include the strengthening of the U.S. dollar vs. most foreign currencies, as well as challenging emerging market local returns.

CalPERS' equities portfolio returned 1%, 31 basis points below the benchmark, while fixed income produced returns of 1.3%, outperforming the benchmark by 93 basis points.

The pension fund ended the fiscal year with $301 billion in assets.

Results for other major equity classes included private equity at 8.92%, 221 basis points below the pension fund's benchmark; real assets produced returns of 12.42%. Real assets, which comprise real estate, infrastructure and forestland, outperformed the custom benchmark by 90 basis points.

Private equity and real estate assets lag the rest of the pension fund portfolio by three months and are as of March 31.

Mr. Eliopoulos said at a news conference that he was not overly concerned about the one-year results. He said the California Public Employees' Retirement System, Sacramento, is a long-term investor and that over the three-year period ended June 30, it had produced strong annualized returns of 10.9%, and over the five-year period, 10.7%.

CalPERS worst-performing allocation relative to its benchmark was the forestland portfolio. The small, approximately $1 billion portfolio produced returns of -0.3% for the fiscal year, 1,094 basis points below the custom benchmark. The inflation portfolio was down 11.5%, but actually 147 basis points above the benchmark.

CalPERS official have said in the past they might scrap the forestland portfolio, and Mr. Eliopoulos said at the news conference that the portfolio and CalPERS' overall real assets portfolio is part of a strategic review. He said a report on the review will be released in the fall.

Ironically, one of CalPERS best-performing asset classes for the fiscal year was its hedge fund portfolio, which the board decided to end in September. It produced returns of 7.25%, 200 basis points above the benchmark. Further information, including when or whether the portfolio was completely divested, could not be learned by press time.