As volatile stock markets have resulted in tens of billions of dollars of losses for the California Public Employees’ Retirement System (CalPERS), there was one bit of positive news Wednesday.
Tests came back showing the CalPERS employee suspected of possibly having coronavirus did not have the virus.
“The good news is the employee was tested and was negative for the virus,” said the pension system’s CEO, Marcie Frost.
She made the comments as the pension system’s board meeting was held by teleconference because of concerns about the unnamed employee having COVID-19.
The suspected case had meant the system’s investment committee meeting scheduled for Monday was canceled, as were other CalPERS committee meetings. The meetings were rescheduled for April.
CalPERS’ headquarters in downtown Sacramento was closed for deep cleaning on Monday, and Frost told the board that investment operations were being run remotely.
She said employees still working on-site were keeping distances of six feet from other employees.
CalPERS has more than 400 staffers in the investment office.
What was missing from the update, however, was an indication of just how badly the pension plan, the largest in the US by assets, had been hit by falling stock prices.
The last time the pension plan reported its assets was on March 12, when it said its value was at $353 billion, down from more than $400 billion just two weeks earlier.
Since then, major stock indexes have gone done ever further. The Dow Jones Industrial Average has seen a drop of 15.52% in the past five days, while the S&P 500 stock index has seen a 12.52% decline.
CalPERS Chief Investment Officer Ben Meng did say the pension system had increased its liquidity position to help mitigate equity declines. The CalPERS liquidity portfolio was nearly $4 billion when the pension plan last reported it on Dec. 31. Under CalPERS guidelines, the pension system could increase the portfolio to as much as $12 billion.
Meng did not offer specifics but said, “We are also taking advantage of prudent investment opportunities that may arise during this time of extreme market volatility.”
Meng also said the CalPERS factor-related equity portfolio, estimated at $62 billion as of Dec. 31, had “helped mitigate the impact of the decline.”
Again, he did not offer specifics.
Most of CalPERS’ equity portfolio, $143.8 billion, was in traditional cap-weighted index strategies as of Dec. 31, meaning it would have moved in line with equity index drops.
“We don’t have a crystal ball to tell you how long this pandemic will last,” Meng told the board. “There’s no clear picture of the impact COVID-19 will have on the economy and the global financial markets. It is difficult to gauge or forecast, and we should expect market volatility to continue.”
Meng also disclosed that CalPERS’ portfolio weights were moving away from strategic allocation targets over the past few weeks because of market fluctuations.
“We are monitoring the situation very closely and have a plan in place to address it and will keep you informed,” he said.
CalPERS’ current target asset allocation gives the greatest weight to equities at 50%. Equities are followed by 28% fixed income, 13% real assets, 8% private equity, and 1% liquidity.
Huge equity losses would likely have lowered the pension plan’s equity allocation to below the 50% target. Overall, equities were at exactly the 50% target ratio as of Dec. 31, CalPERS statistics show.
CalPERS’ fiscal year ends on June 30, and without a significant equity market recovery over the next few months, its returns could be in the low single digits or even in negative territory.
CalPERS shoots for a 7% annualized investment return. A return significantly below that number could lower the pension plan’s approximately 71% funded ratio and trigger more rate increases for cities, towns, and school districts that already have been seeing rising contributions.