CalPERS Loses $15B in Stock Drop

But fund’s 4.6% loss is nearly half of what market lost overall, Eliopoulos says.

The California Public Employees’ Retirement System (CalPERS), the largest US pension plan, lost more than $15 billion in assets under management from the day the stock market began to collapse on January 26, through February 9, 2018, Ted Eliopoulos, the system’s chief investment officer, disclosed Monday.

Eliopoulos, speaking at the system’s Investment Committee meeting in Sacramento, said the retirement plan had lost 4.6% of its AUM during the 11-day period. He said CalPERS’ AUM stood at $345.39 billion as of February 9.

But Eliopoulos said the pension plan’s diversified portfolio saved it from more severe losses. He noted that the S&P 500 Index lost 8.7% during the same t period. CalPERS has approximately 50% of its overall portfolio in equities.

Eliopoulos said the low stock market volatility of the last two years may be over.

“Now looking forward to 2018…we’re seeing the beginning of the market environment that may be shifting,” he said.

While it is unclear just how volatile markets will be in the rest of 2018, Eliopoulos said that stock market volatility is more a norm than the exception. He said that stock market declines of 10% are “not unusual” when taking into account stock market historical perspective.

Ironically, Eliopoulos gave his market discourse on the same day he disclosed that CalPERS had strong investment performance in the calendar year 2017.

CalPERS, he said, saw a 15.7% overall return in the year, beating its 15.5% custom benchmark.

Eliopoulos said strong stock market performance in 2017 made equities CalPERS’ biggest performing asset class with a 24% return. It was slightly under, however, CalPERS’ custom equity benchmark of 24.4%.

Private equity was the second-best producing asset class in 2017, with an 18% return, but that was also below the custom benchmark of 22.9%. Fixed income posted a 7.2% return in 2017, beating its custom benchmark, which produced a 6.2% return. Real assets, which includes real estate and infrastructure, posted an 8.5% return in 2017, beating the custom benchmark of 6.4%. Meanwhile, CalPERS’ inflation-sensitive asset class had a 6.3% return compared to its custom benchmark’s 6.2% return.

The inflation-linked asset class is made up of two main asset types: inflation-linked bonds and commodities, which include commodity futures, forwards, swaps, structured notes, and options.

Going forward, Eliopoulos noted Monday that CalPERS faces more muted returns.

CalPERS officials previously have said t they expect annualized investment returns in the low 6% range over the next decade.

But Eliopoulos noted that on a more positive note, CalPERS is in the process of lowering its yearly rate of return from 7.5% to 7%.

He said that is bringing in more contributions from employers and ending the practice of CalPERS having to sell off assets to pay pension beneficiaries.

In 2016, CalPERS was forced to sell around $4 billion in assets because it paid out $20.5 billion in benefits, $4 billion more than it had in its accounts.

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