CalPERS and CalSTRS post double digit portfolio returns

 The US’ two largest pension systems posted total overall portfolio returns of over 18 percent year-to-date  

The rally in global and domestic equities bolstered the portfolios of the California Public Employees' Retirement System and the California State Teachers' Retirement System, according to portfolio statements released by the funds yesterday. CalPERS posted returns of 18.4 percent, and CalSTRs posted returns of 18.7 percent.

Private equity returns for both funds amounted to some 20 percent, adding significantly to the overall portfolios as well.

The results of the private equity portion of the CalPERS portfolio come on the heels of earlier news that the pension would be trimming target allocations to the asset class after difficulty finding investment opportunities, PEI reported at the time. CalPERS also de-risked their overall portfolio around the same time funneling cash from realized private equity investments into fixed income and cash reserve positions.

Despite posting double digit returns reminiscent of pre-crisis markets, both pensions are still significantly underfunded. CalPERS is 76 percent funded after this year and CalSTRs is now 67 percent funded.

Both pension systems have been in the news recently. CalPERS has been cooperating with federal and state authorities following a guilty plea from former CEO Fred Buenrostro, on charges that he violated pay-to-play rules. CalSTRS was the focus of a new report from the California Legislative Analyst’s Office which said that funding CalSTRS should be a top priority for the state, and will also be one of the most difficult priorities to achieve.

Without legislative action, CalSTRS will be insolvent by the 2040s. “Due to its massive unfunded liability and relatively fast growth rate, we recommend that the Legislature make the CalSTRS pension program a top priority in addressing the state’s key liabilities. We recommend that the Legislature aim to fully fund the system in about 30 years. Doing so will be difficult. Depending on the funding arrangement, the additional contributions from the state, teachers, and districts combined could total over $5 billion per year by the early 2020s. Addressing this difficult challenge, however, only grows more costly the longer we wait, meaning that the most important action the state can take to minimize costs is to act quickly to increase contributions to CalSTRS,” the report said.

Two cities in California – San Bernardino and Stockton are already working through Chapter 9 bankruptcy proceedings partly as a result of their large pension obligations.