It was the second straight year that the pension fund achieved double-digit returns, exceeding its actuarially assumed rate of return of 7.75 percent.
"Our performance is good news for our members, employers and taxpayers," said Mark Anson, Chief Investment Officer for the pension fund. "We exceeded industry benchmarks in three out of five major asset classes, and added $23.5 billion to the fund. Nearly $2.5 billion of that amount was generated by our investment staff’s value added decisions, taking advantage of unique market opportunities that presented themselves during the year."
CalPERS strong investment performance, combined with its new employer rate smoothing policy, are factors that will result in more stable and potentially lower employer contribution rates in the future for the State of California and public agencies.
The double digit returns for FY 2003-04 and the impact of the pension fund’s recent smoothing policy resulted in the State not having to pay $186 million in employer contributions for state workers and $77 million less for school workers in FY 2005-06. This latest news about positive investment returns will likely result in the continuation of millions of dollars of employer contribution savings for FY 2006-07 than it would otherwise. Today’s announcement is an estimated return and the pension fund will rely on an audited, net-of-fees return to establish future employer contributions.
CalPERS investments in real estate, private equity and international stocks were the main performance drivers during the year.
The greatest single asset class rate of return was the pension fund’s real estate portfolio, which is largely office, retail, apartment and industrial assets. It returned nearly 38 percent, more than double the NCREIF benchmark that earned 15.5 percent.
CalPERS Alternative Investment Management Program, which specializes in private equity and venture capital holdings generated the second highest rate of return of 22.8 percent, exceeding its benchmark of 14.2 percent.
The System’s investments in corporate governance funds that target ailing public companies also performed well, posting a 20.8 percent return.
International stocks earned 17.3 percent compared with the benchmark of 16.9 percent, while absolute return strategies had an 8.6 percent return, exceeding the benchmark of 6.7 percent.
Global fixed income investments returned 10.8 percent, a bit short of the benchmark of 10.9 percent, while domestic stocks earned 7.5 percent, just shy of the benchmark of 7.6 percent.
At the end of the fiscal year, 68 percent of the CalPERS portfolio was invested in public and private equity, 26 percent in bonds and other fixed income, and 6 percent in real estate.
CalPERS is the nation’s largest public pension fund. The System provides retirement and health benefits to more than 1.4 million State and local public employees and their families. For more information about CalPERS, please visit the System’s Web site at www.calpers.ca.gov.
