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The California Public Employees’ Retirement System (CalPERS) today released its preliminary 2008-09 investment performance, noting a decline in the market value of its assets of 23.4 percent for the one-year period ending June 30, 2009. It was the most severe single year decline, but even with this decline, its long term 20-year investment return remained positive at 7.75 percent.
In comparison, world equity prices declined 29.3 percent during the same one-year period ending June 30, 2009.
The drop in the fund’s market value of assets is due primarily to the impact of historic unprecedented declines in the global financial markets and the liquidity crises that followed worldwide, generating a global economic recession.
“This result is not a surprise; it is about what we expected given the collapse of markets across the globe,” said Joe Dear, Chief Investment Officer. “The good news is we have the opportunity to capture future returns because of our long- term investment horizon. The System has more than enough cash through contributions and income from investments to meet our present liabilities, so we are in a good position to ride out the current downturn and come out stronger.”
“In the meantime, “he said, “we are using a disciplined and proactive approach to position the fund for investment returns while carefully managing investment risk.”
As of June 30, 2009, the market value of assets stood at $180.9 billion. A year before, CalPERS market value of assets was $237.1 billion, dipped to $160 billion in March of 2009, and rebounded by $20 billion in three months to end the year at $180.9 billion.
The System’s efforts to position the portfolio include:
- Revising its asset allocation to maintain flexibility to make opportunistic investments in private equity, real estate and infrastructure today and planning toward a fuller asset allocation and liability review in 2010;
- Realigning relationships with hedge fund and private equity partners that can lead to reduced fees, better alignment of interests, and more mutually beneficial long-term relationships;
- Engaging in a sweeping Board-directed initiative to advance new and innovative methods for risk management across the System’s operations;
- Searching for and executing opportunistic investments resulting from market dislocations;
- Filing a court action to recover losses from structured investment vehicles due to misrepresentation of the quality of the investment instruments by credit rating agencies; and
- Stepping up activism on the federal government front to influence financial market reform, federal regulation, and corporate business practices that will effectively protect investors.
Today’s announcement includes changes in the market value of assets as follows:
- Cash returns increased by 1.4 percent;
- Global fixed income earned 0.6 percent;
- Real estate was down by 35. 8 percent*;
- Private equity declined by 31.4 percent*;
- Public stocks were down over a year ago by 28.5 percent; and
- Inflation-linked assets (commodities, infrastructure, forestland and inflation-linked bonds) fell 20.9 percent.
(Real estate and private equity returns reflect market values through March 31, 2009, not June 30, 2009. Pending appraisals in real estate and valuation adjustments in private equity will impact final year end performance.)
Employer contribution rates that use FY 2008-09 investment performance will be calculated based on audited figures. CalPERS uses audited returns after fees to determine future employer contributions.
CalPERS Board has recognized the need for eventual employer contribution increases out into the future, and recently adopted a special methodology to schedule employer contributions as a result of this single-year market decline of assets. The Board adopted a 30-year fixed contribution schedule method for local governments that will cover the funds needed and won’t rely on the variable of future investment returns. A similar proposal for the State will be the subject of a Board of Administration meeting in September, 2009.
For information on CalPERS history of investments go to Facts at a Glance- Investments in the press room at www.calpers.ca.gov.
CalPERS is the nation’s largest public pension fund, administering retirement benefits for 1.6 million active and retired State, public school, and local public agency employees and their families and health benefits for 1.3 million members.
*Real estate and private equity returns are for 12 months ending March 31, 2009 and are subject to change. Pending appraisals in the real estate portfolio will also affect final year-end data.
Additional Resources
Watch an Interview with CalPERS Chief Investment Officer on "Investing in an Unprecedented Market"
