CalPERS returns 5.8% for fiscal year

CalPERS earned a preliminary net return of 5.8% for the fiscal year ended June 30, bringing the $468.3 billion pension plan's estimated funded status to 72%, CEO Marcie Frost said Wednesday at the board's off-site meeting in Monterey, Calif.

The preliminary total fund return for California Public Employees' Retirement System, Sacramento, outperformed its 5.5% benchmark.

"The global economy does continue to remain unsettled," with challenges of domestic inflation and global conflicts causing volatility, Ms. Frost told the board.

CalPERS returned a net -6.1% for the fiscal year ended June 30, 2022.

CalPERS' best-performing asset class for the one-year period was public equity with a 14.1% net return, equal to its benchmark. That was followed by the pension fund's new asset class of private debt with a 6.5% net return, above its 3.7% benchmark. The pension fund added a 5% target to private debt last year.

Fixed income's net return was zero, equal to its benchmark. The remaining two asset classes, private equity and real assets had negative net returns with -2.9% and -3.1% respectively. Private equity and real assets did, however, outperform their benchmarks of -5.9% for private equity and -4% for real assets.

While CalPERS fiscal year 2023 returns were driven by public equity, the portfolio's excess returns over its benchmark were "really driven by the private markets," said Nicole Musicco, CalPERS' chief investment officer, in an interview.

For real assets, the negative one-year return was the result of market values that have come down as a result of the market dynamic, she said. However, some sectors performed better than others. Infrastructure investments in renewable infrastructure and data infrastructure benefited from structural tailwinds, Ms. Musicco said. Within transportation, some infrastructure types were hurt by slowing volumes, while airports are seeing continued strength in volumes, she said.

CalPERS officials are "very bullish" on infrastructure. But in real estate Ms Musicco said "nobody should be surprised by negative real estate returns."

The pension fund also reported preliminary longer term net annualized returns for periods ended June 30: 6.1% for five years, 7.1% for 10 years, 7% for 20 years and 7.5% for 30 years ended June 30. CalPERS' portfolio either met or topped the benchmarks in all but the 20-year period for which it underperformed its 7.4% benchmark. The benchmarks for the other periods were 5.9% for the five years, 7% for the 10 years and 7.5% for the 30 years.

CalPERS' funded status is the same as the 72% estimated as of June 30, 2022, but lower than its 81.2% funded status as of June 30, 2021.

The pension fund's target allocation is 42% global public equity, 30% fixed income, 15% real assets, 13% private equity, 5% private debt, zero liquidity and -5% leverage.