News Column

CalPERS, CalSTRS report 18 percent profit on investments

July 14, 2014

By Dale Kasler, The Sacramento Bee

July 14--California's two giant public pension funds today reported profits exceeding 18 percent on their investment portfolios for the just-ended fiscal year.

CalPERS said it earned 18.4 percent, marking the fourth time in five years it has earned double-digit investment returns.

CalSTRS clocked in at just under 18.7 percent. "These numbers are extraordinary and very encouraging," said Sharon Hendricks, chair of the teachers' pension fund's investment committee, in a press release.

Both pension funds are still trying to recover from the crippling multibillion-dollar losses of 2008-09, when the financial markets crashed. Despite the healthy returns in the latest 12-month period, both funds remain "underfunded," which means they don't have assets to cover all of their long-term pension obligations.

"There's much, much work to be done," said Ted Eliopoulos, CalPERS' interim chief investment officer, in a conference call with reporters. "We're ever vigilant; we try not to get too excited in good years or bad years about one-year results."

For the two funds, the 18 percent-plus gains were substantially higher than their official forecasts of 7.5 percent.

Despite the strong results, both pension funds are continuing to raise pension contribution rates. CalPERS in April approved the first in a series of rate increases to reflect longer life expectancies for retirees.

As for CalSTRS, the Legislature last month approved a financial rescue package that will gradually increase contributions by nearly $4 billion a year combined from the school districts, the state and teachers themselves. The teachers' pension system, unlike CalPERS, doesn't have the authority to raise rates on its own.

Both funds saw huge gains in stocks; CalSTRS public stocks rose by 24 percent and its private equity returns came to 26 percent. CalPERS' public stocks increased 24.8 percent and its private equity 20 percent.

Over the years, the two funds have made major strides in recovering from the market crash. CalPERS' portfolio sits at $299.4 billion, a gain of 83 percent from the low point of $164 billion in 2009. CalSTRS portfolio was at $189.1 billion as of June 30, the most recent figure available.

But because they spent several post-crash years with a much smaller pool of money to invest, they've been unable to keep pace with rising liabilities. For instance, CalPERS is just 76 percent funded.

Until the Legislature voted last month to raise contribution rates for CalSTRS, the teachers pension fund had warned that it would run out of cash in another 30 years or so.



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Source: Sacramento Bee (CA)

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