Public Equities Drive CalPERS’ 3.2% Q1 Return

The California Public Employees’ Retirement System’s retirement fund returned 3.2% during the first quarter of 2023, raising its total asset value to $452.6 billion, according to the pension giant’s latest investment performance report. However, the performance fell short of its benchmark’s quarterly return of 4.3%.

Gains during the quarter were led by the portfolio’s public equity investments, which returned 5.9% for the period ending March 31. The pension fund’s global fixed income investments gained 3.7%, matching its benchmark’s performance, followed by private debt, which returned 1.3% but missed its benchmark by 281 basis points.

“All public markets segments generated positive returns as markets shifted to expecting interest rate cuts by the Federal Open Market Committee as the economy slows,” the pension fund wrote in the report.

Private equity investments returned 1.2%, well below its benchmark’s return of 10.2%, while the real assets portfolio lost 4.0% during the quarter, beating its benchmark’s loss of 5.1% during the quarter.

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“Private markets continue to offer mixed results,” said the report. “Economic uncertainty contributed to a steep decline in real estate transaction volumes. Infrastructure transactions are likely to slow as well.” It added that CalPERS’ staff are monitoring “rising cap rates and increased interest rates as they drive downward pressure on valuations.”

The pension fund reported annualized 10- and 20-year gains of 6.9% and 7.5% respectively, while its benchmark returned 6.8% and 7.9% respectively over the same time periods. And over the shorter term, the portfolio had three- and five-year returns of 8.7% and 5.7% respectively, edging out the benchmark’s three-and five-year returns of 8.1% and 5.5% respectively. During the trailing 12 months ending March 31, the pension fund’s investments lost 5.0%, but outperformed the benchmark’s loss of 5.9%.

CalPERS’ real assets were the only investments in its portfolio that didn’t post negative returns for the trailing year, returning 3.9% during the time period. However, all asset classes except real assets have generated positive excess performance for the trailing five- and 10-year periods, according to the report.

The report also said that total plan volatility has been relatively stable over the last 12 months and is in line with the transition to the strategic asset allocation CalPERS adopted in 2021.

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Tags: California Public Employees’ Retirement System, CalPERS, First Quarter, Private Markets, Public Equity, Real Assets

The estimated funded level of the 100 largest U.S. public pension funds declined to 73.7% in May from 74.8% at the end of April, according to actuarial and consulting firm Milliman, which tracks public pension funded levels through its Milliman 100 Public Pension Funding Index (PPFI).

It was the eighth straight month when the plans’ funded ratio remained within the 70% to 75% range. Milliman noted that the relative stability of the funded levels is in sharp contrast to the period from March 31, 2020, through Sept. 30, 2022 when funded levels surged to 85.5% and then fell back to 69.8% before rising to their current levels.

In aggregate, the 100 plans in the index reported an investment loss of 1.0% during May, with individual plans’ returns ranging from a loss of 0.3% to a loss of 1.8%. As a result, the plans lost approximately $43 billion worth of market value. Combined with net negative cash flow of approximately $9 billion, the asset value of the Milliman 100 PPFI declined to $4.465 trillion at the end of the month from $4.517 trillion at the end of April. Meanwhile, the deficit between the estimated assets and liabilities increased to $1.590 trillion at the end of May from $1.524 trillion a month earlier.

The firm said the total pension liability of the public pension funds continues to grow, rising to an estimated $6.055 trillion at the end of May from $6.041 trillion the previous month. The firm also said that the minor market decline during May pushed one plan below the 90% funded mark, leaving 16 above this benchmark, compared with 17 the previous month. At the same time, the number of plans below 60% funded remained at 24.

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