California public pension fund loses $29 billion in market downturn | California

(The Center Square) – The California Public Employees’ Retirement System (CalPERS) on Wednesday reported a preliminary net return on investment of -6.1% for the 12-month period ending June 30, representing its first loss in more than a decade.

CalPERS said Wednesday that “turbulent global markets” played a role in the system’s first loss since the 2009 financial crisis. Factors such as “global financial market volatility, geopolitical instability, rising interest rates “national interest and inflation” have had an impact on public market returns, CalPERS wrote in a Press release.

“We have done a lot of work over the past few years to plan and prepare for difficult conditions,” CalPERS CEO Marcie Frost said in a statement. “Despite market conditions and their impact on our returns, we are focused on long-term performance and our members can be assured that their retirement is safe and secure.

CalPERS’ private market investments have outperformed its public market investments over the past year. CalPERS reported Wednesday that its public equity investments returned -13.1% and fixed income investments returned -14.5%. Meanwhile, the system’s private equity investments returned 21.3% and real assets returned 24.1%.

Public market investments make up the majority — about 79% — of CalPERS’ total fund, according to the system.

Investment returns have a significant impact on the funding of the pension system, which means that a poor year of investment return can have an impact on unfunded pension liabilities. CalPERS estimates that with a “discount rate of 6.8% and a preliminary return of -6.1% this year, the estimated overall funded status is 72%.

When a plan is underfunded, pension systems have few options to address it. They can either hope to earn more on the stock market or increase contribution rates for employees and employers, that is, taxpayers in the case of public pension plans.

In November 2021, the CalPERS Board of Directors lowered its market expectations, which meant that some employees would have to contribute more to their pension fund because the fund expected to earn less on its investments. The contribution changes primarily affect employees hired after January 2013, taking effect for school employees (excluding teachers) this month and most other local government employees in July 2023.

In a report published last week per the Reason Foundation, CalPERS’ unfunded retirement liabilities are projected to drop from $101 billion in 2021 to $159 billion in 2022 if investment returns return to -6%.

CalPERS is the nation’s largest public pension fund. At the end of last fiscal year, assets were $440 billion, CalPERS wrote in a press release.