The California Public Employees’ Retirement System, the largest U.S. pension fund, earned 20.7 percent in the 12 months ended June 30, its best result in 14 years, led by gains in stocks and private equity.
Shares held by the $237.5 billion plan, known as Calpers, returned 30.2 percent in the year that ended June 30, fund administrators said today. Fixed-income investments rose 7 percent. Real estate and private equity, which are both delayed by three months, earned 10.2 percent and 25.3 percent through March, respectively.
The results may help Calpers parry concerns that it relies on overly optimistic assumptions for its return on assets that hide the true size of its deficits. The fund lost almost a quarter of its value in 2009 as the global recession dragged down stock prices and real estate values.
“Obviously the results are pleasing,” the Chief Investment Officer Joe Dear told the governing board today at a meeting in Petaluma, north of San Francisco. “We are in the 20 percent club. It was a good year. We are back.”
Stock Market Rebound
Pensions such as Calpers have benefited from the stock market’s rebound since March 2009, when the Standard & Poor’s 500 Index touched a 12-year low. The index was little changed in the second quarter, after gaining 5.4 percent from January through March. The broad gauge of U.S. equities climbed almost 13 percent last year and 23 percent in 2009.
Calpers invests about 49 percent of assets in stocks, 20 percent in bonds, 14 percent in private equity, 10 percent in real estate and 5 percent in inflation-linked assets such as commodities. It tries to keep 2 percent in cash.
The fund gained 13.3 percent in fiscal 2010 after losing 23.4 percent in 2009, the biggest drop in the pension’s 79-year history. It lost 4.9 percent in 2008 after a 19.1 percent climb in 2007.
Calpers had assets of about $225 billion when Lehman Brothers Holdings Inc. went bankrupt in September 2008, leading to a panic that wiped out more than $6 trillion in U.S. stock- market value in about six months. Calpers value plummeted to $164.7 billion by Jan. 31, 2009. It had reached $251 billion at the end of June 2007, climbing to a record of about $260 billion in October of that year, just before the global recession began.
The 13-member Calpers board in March voted to keep the expected rate of return on assets at 7.75 percent. They rejected a recommendation from actuaries to lower it to 7.5 percent, which was based on projections for market returns to trail historical averages.
Some board members expressed concern at the time that a lower rate would have burdened local governments by forcing them to put more cash into the fund as they were already facing financial strains.
Calpers in January said it had only about 70 percent of the money it needs to cover benefits promised to government workers when they retire. The pension was fully funded when the recession began in December 2007.
Taken as a whole, 215 public pensions in the U.S. have 76.1 percent of the assets needed to meet projected obligations, on average, according to a survey released in June by the National Conference on Public Employee Retirement Systems in Washington.
The California State Teachers’ Retirement System, the second-biggest U.S. public pension with about $154 billion in assets, expects a 22.5 percent return for the just-ended fiscal year, the biggest annual gain since 1986, its investment chief said July 12.
The New York State Common Retirement Fund, the third- largest U.S. public pension plan with $146.5 billion, returned an estimated 14.6 percent for the year that ended March 31, Comptroller Thomas DiNapoli said July 14.
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