CalPERS has offered a vigorous response to media critics that have faulted the fund for only returning 1% in the 2011 fiscal year.
(July 23, 2012) — The largest public pension plan in the US is hitting back against its media critics.
In a letter addressing the Sonoma County Press Democrat, the California Public Employees’ Retirement System (CalPERS) blasted the paper’s editorial about the fund’s most recent annual return as demonstrating “a severe misunderstanding of CalPERS’ pension fund investment strategy.” It also accused the paper of mischaracterizing “how a single-year return will actually impact public agencies.”
The uproar surrounds the $235 billion fund’s fiscal 2011 annual return of 1%, a far cry from its long-term investment goal of 7.5%. In the letter to the Press Democrat, CalPERS put that figure into context. “As a long-term investor, we fully expect a range of possible returns every year,” the letter explained. “If you insist on looking at returns on a single-year basis, we posted gains not just in excess but in significant excess of 7.5% 13 times in the past 19 years. We are long-term investors, and we use investment strategy to reach our long-term goals.”
CalPERS also included an explanation from its chief investment officer, Joe Dear: “The key to having a strategy is working with it. The worst mistake is to abandon the strategy when it appears to have some trouble."
The Press Democrat editorial, published last week, was emblematic of the media’s response to the annual return, which it called “abysmal.” “The California Public Employee Retirement System [sic] reported another dismal investment performance,” the paper wrote.
“California is in desperate need of CalPERS reform,” the editorial concluded. “Taxpayers can't afford its mistakes.”
The CalPERS letter also asserted that the predication of fiscal fallout was overdrawn. “This year's 1% return will be reflected in employers' contribution rates two years from now,” the fund wrote. “Just as when we have large gains, losses are spread over 30 years to ensure employer rates remain as stable and predictable as possible. Any increases due to this year's returns will be very small.” The letter also noted that any adjustments in employee contribution rates arise from collective bargaining and do not reflect annual fluctuations in investment returns.
To read the CalPERS letter in full, click here. To read an aiCIO editorial on the topic published last week, click here.