CalPERS Reports 11.2% Return for Fiscal Year 2017

Portfolio gains led by public equities, which returned nearly 20%.

The $344 billion California Public Employees’ Retirement System (CalPERS) reported an 11.2% net investment gain for the Public Employees’ Retirement Fund (PERF), and an increase of more than $24 billion in assets for the fiscal year ending June 30, 2017.

CalPERS attributed the double-digit returns to strong financial markets, as the portfolio was led by its public equity program, which returned 19.6% for the year. Private equity also buoyed the portfolio, delivering a 13.9% net return, followed by real assets, which returned 7.4%. It also reported three-, five-, and 10-year returns of 4.6%, 8.8%, and 4.4%, respectively.

Investment assets stood at $326.4 billion for PERF, which had a funding level of 68.3% as of June 30, 2016. CalPERS said that as a result of the discount rate change from 7.5% to 7% through the three-year phase-in, the PERF funded status is estimated to be 68% as of June 30, 2017. This estimate assumes a 7% discount rate that will be in effect in fiscal year 2019-20 for the state, and fiscal year 2020-21 for schools and public agencies.

“We have a clear plan forward to ensure long-term sustainability of the Fund and to increase our funded status, but it will take time,” said CalPERS CEO Marcie Frost in a statement. “Our plan to raise the funded status is built on three strategies: addressing financial challenges, operating our organization as efficiently as possible to contain costs, and following sound investment principles.”

In late 2016, the CalPERS Board voted to lower the discount rate for the PERF from 7.5% to 7.0% over the next three years. The move “was done to give employers more time to prepare for the changes in contribution costs,” wrote CalPERS CIO Ted Eliopoulos in the fund’s comprehensive annual financial report. “While this means many employers and employees will see increases to their costs, it also brings the PERF more aligned with what CalPERS can responsibly assume to return from our investments over the longer term.”

The one-, three-, five-, and 10-year returns for public equity are 19.6%, 5.3%, 11.6%, and 4.4%, respectively, while the one-, three-, five-, and 10-year returns or private equity are 13.9% 8.1%, 11.5%, and 9.3%; and the one-, three-, five-, and 10-year returns for global fixed income, and real assets is 0.3%, 3.5%, 3.4%, and 6.5%; and 7.4%, 8.6%, 10%, and (0.9%), respectively.

CalPERS also reported that as of June 30, 2017, the asset allocation for PERF was 48.3% in global equity, 19.4% in global fixed-income, 11.2% in real assets, 8.0% in private equity, 7.8% in inflation assets, 4.8% in liquidity, and the remaining 0.5% was allocated to “Total Plan Level,” which includes multi-asset class, absolute return strategies, transition, and plan level portfolios.

The PERF said it paid $21.4 billion in annual pension benefit payments to nearly 670,000 retirees and beneficiaries—an increase of 3% from the previous fiscal year’s total of nearly 650,000 retirees and beneficiaries.

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