CalPERS May Cut Its Projected Rate-of-Return

(March 1, 2010) – The California Public Employees’ Retirement Fund (CalPERS), America’s largest pension fund, will make a recommendation to its board on whether to lower its actuarial rate of return in December.

Since 2003, CalPERS has assumed its fund, the value of its stocks, bonds and other holdings, would earn an average annual rate of 7.75%. But, following heavy losses during the financial crisis, the $200 billion fund is assessing whether to lower its long-standing rate. Lower investment return expectations would also decrease the likelihood that the fund would invest in more risky nontraditional investments, such as real-estate and private-equity, which contributed to the fund’s losses.

While specific alternative targets have not yet been decided on by CalPERS officials, the Wall Street Journal reported, the board has been urged to reduce its rate of return expectations to as low as 6%.

According to Reuters, Blackrock’s chief executive Laurence Fink told the board of  CalPERS in July 2009 that the assumed rate of return on its investment was unrealistic. Fink said the fund should expect smaller gains, telling CalPERS board members that it would be lucky to get 5% or 6% return on its portfolio.

“Given the market conditions over the last year we feel it’s prudent to review our assumptions,” fund spokesman Brad Pacheco said to Reuters.

CalPERS was down 23% totaling $58 billion in its fiscal year ended June 30. The decline represented the worst performance in CalPERS’ 78-year history. The fund was up 12% for the year ended December 31.