Tags: Calpers | weak | fund | shortfall

Calpers’ Weak Investments Produce $233 Billion Pension Shortfall

By    |   Friday, 20 July 2012 12:16 PM

The California Public Employees' Retirement System (Calpers) generated an investment return of only 1 percent for the year ended June 30, producing a $233 billion shortfall for the system.

That hole may have to be financed by the state and its cities, The Wall Street Journal reports. Calpers, the nation’s largest pension fund, attributed its mediocre performance to Europe’s financial crisis and weak results from its outside equity managers.

Calpers far underperformed the Standard & Poor’s 500 Index, which gained 3.1 percent in the year through June 30 before even including dividends.

"The last 12 months were a challenging period for all investors,'' Joe Dear, Calpers chief investment officer, said in a conference call.

That’s certainly true. But Calpers did worse than investors who simply put their money in a stock index fund.

Calpers has trimmed its annual investment return target to 7.5 percent from 7.75 percent. And Dear says he believes that’s realistic, despite the latest setback.

Is he right?

Here’s what New York City Mayor and financial expert Michael Bloomberg tells The New York Times about such goals: “If I can give you one piece of financial advice: if somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”

To be sure, Calpers does have a 20-year investment return of 7.7 percent, so its target can’t simply be dismissed.

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Friday, 20 July 2012 12:16 PM
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