CalPERS reports 21.3% return for fiscal year, shy of benchmark

CalPERS earned a net return of 21.3% for its fiscal year ended June 30, CEO Marcie Frost said Monday, in revealing preliminary investment results at the $473.4 billion pension fund’s off-site meeting.

The pension fund underperformed its benchmark return of 21.7%, CalPERS reported.

“While we are very pleased with these earnings and the performance of the portfolio, it’s also important to note that we never lose sight of the fact that we are long-term investors,” Ms. Frost said.

The California Public Employees’ Retirement System, Sacramento, earned an annualized net 10.3% for the five-year period, 8.5% in the 10-year period and 6.9% over 20 years.

CalPERS’ best-performing asset class in the one-year period was private equity, with a net 43.8% return as of March 31; followed by equities, with a net return of 36.3% as of June 30; and real assets, 2.6% as of March 31. The pension fund’s liquidity portfolio earned 0.1% and fixed income, -0.1%.

Private equity and real asset returns lag by one quarter.

The preliminary fiscal-year returns triggered CalPERS’ funding risk-mitigation policy, which could result in the pension fund’s discount rate being lowered to 6.8% from 7%. The lowering of the discount rate will increase employee contributions but not employer contributions, Ms. Frost said.

CalPERS’ risk-mitigation policy calls for the reduction of the discount rate, should fiscal-year returns exceed the current discount rate of 7% by 2 percentage points or more. It is the first time CalPERS will have implemented the policy since it was adopted in 2015, Ms. Frost said.

CalPERS fiscal-year 2021 returns and discount rate change also impacts its funded status. Ms. Frost said that with the investment return announcement that CalPERS’ funded status is an estimated 82%. However, the drop in the discount rate would result in its funded status, falling to 80%.

During a brief discussion on whether CalPERS should open global offices, interim CIO Dan Bienvenue said CalPERS does not expect to hire a permanent CIO until the conclusion of its asset-liability study in November.

Later in the meeting, Mr. Bienvenue said he would like the board to increase its exposure to private assets by increasing its allocations to private equity and real assets, as well as to explore adding a private debt allocation. He also said that in its asset-liability study, CalPERS should consider adding or changing its global exposure as well as using total portfolio leverage to boost returns.