The California Public Employees' Retirement System (CalPERS) announced today that it earned a 15.4 percent return on investments for the 2006 calendar year, before investment management fees.
The pension fund gained $29.4 billion during the year and nearly doubled its assumed rate of return of 7.75 percent – an annual target necessary to pay future member pension benefits.
It marks the fourth straight year the pension fund earned double-digit returns. The System's average annual investment return over the last 10 years was 10.0 percent.
CalPERS has gained more than $100 billion since the downturn of the market in 2002 and today is nearly 90 percent funded.
"We had a very strong fourth quarter of 2006, with an overall portfolio gain of 6 percent just for those three months,” said Charles P. Valdes, Chair of the CalPERS Investment Committee. “Since investment gains account for $3 of every $4 that we pay out in retirement benefits, these strong returns will help to restrain employer contributions.”
The pension fund exceeded industry benchmarks in three of the System’s four major investment asset classes in 2006.
The real estate portfolio was the biggest percentage gainer among asset classes, returning 27.6 percent for investments in office, retail, apartment, industrial, housing, land, and California urban properties. By comparison, the NCREIF industry benchmark earned 17.6 percent.
The System's Alternative Investment Management Program, which specializes in private equity and venture capital holdings, earned 20.9 percent compared with a benchmark of 17.7 percent.
Total fixed income gained 5.0 percent compared with the Fixed Income Policy Index of 4.1 percent. Global public equity returned 18.4 percent compared with the index of 18.9 percent.
“Our investment staff has done exceptionally well managing our assets in tough market environment,” said Russell Read, Chief Investment Officer for CalPERS.
At the end of the year, 63.2 percent of the CalPERS portfolio was invested in public equity, 23.1 percent in bonds and other fixed income, 7.5 percent in real estate, 5.6 percent in private equity, and 0.6 percent in cash equivalents.
The performance figures represent an estimated return. CalPERS will use a different, audited return, net of fees, to determine future employer contributions. While employee contributions are relatively fixed, employer contributions vary to make up the difference between total contributions and investment returns to ensure funding of the System.
CalPERS is the nation's largest public pension fund with assets of more than $230 billion. It administers retirement and health benefits for approximately 1.5 million current and retired California public employees and their families. For more information on CalPERS, visit www.calpers.ca.gov.
