CalPERS CEO Marcie Frost said it “isn’t time to panic” over market turmoil connected with tariffs but that turmoil might lead to a recession and could impact the pension fund’s fiscal-year returns.
“Because we are long-term investors, we typically don't focus too intently on the events of any given day or week,” Frost said at the pension fund’s April 15 board meeting, “but even so, I want to briefly comment on the events of the past two weeks where we've seen global financial markets respond swiftly, and overall negatively, to policy decisions made by the U.S. government. It's the kind of market disruption that has impacts for investors, small and large, including CalPERS.”
Frost said that during the week following President Donald Trump’s April 2 announcement of new tariffs, the $517 billion California Public Employees’ Retirement System, Sacramento, lost $26 billion of its value.
“Recent events have moved the numbers around a bit more, but the overall trend during all of this has been one of decline,” Frost said. “Almost every day has brought a new development in the market's reaction to the president's tariffs.”
“There have been several different explanations for what the tariffs are trying to achieve, and varying guidance on their size and their scope, but our investment team believes that the larger and more widespread these tariffs are, the more drag there may be on GDP (gross domestic product) and more increase in prices, and it feels as though a recession is now a real risk for the economy, posing substantial challenges,” Frost said.
She noted that CalPERS’ fiscal year ends in 76 days, and while the pension fund’s standing policy is to earn an investment return of at least 6.8% for the year ended June 30, that might be a challenge.
"We worked hard in recent years to reduce the system's unfunded liability, the gap between assets and obligations both now and into the future," Frost said. "Even in the best of times, it can be challenging to meet expectations. Investors always assume some level of risk, and global economies expand or contract for a variety of reasons, but we must prepare for the possibility that current events here in the U.S. could have a serious impact on our investment returns as of June 30 and into the fiscal year that begins after that.”
Frost said the essential strength of CalPERS is the diversification of its portfolio, which “is essential to preserving capital and maintaining stability through market cycles.”
“It's also why our critics are wrong when in more steady times, they say that CalPERS should only invest in the S&P 500,” Frost said.
