Exclusive: CalPERS Separates Board From Public Due to Virus Concerns

California Public Employees’ Retirement System (CalPERS) board members will be separated from each other by six feet during board meetings next week, and the public will be put in a separate room to watch the meetings on television screens due to concerns about the new coronavirus outbreak.

“Per guidance from public health officials for Sacramento County, we have fully implemented social distancing guidelines for public meetings, which includes our committee and board meetings next week, Marcie Frost, the pension system’s chief executive officer, said in a letter to board members obtained by CIO.

The radical change will affect the meeting of the CalPERS Investment Committee set for Monday and the full 13-member board meeting set for March 18. The investment committee, which is made up of nine of the 13 board members, sets investment policy for the largest US pension plan.

Frost’s letter comes after California Gov. Gavin Newsom called two days ago for all events with more than 250 people to be cancelled at least until the end of March.

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The CalPERS meetings, which are held in the pension plan’s auditorium at its main headquarters in downtown Sacramento, are usually attended by fewer than 100 people. So the meetings could have still been held with the public present without violating the governor’s order.

But Newsom said smaller events “should proceed only if the organizers can implement social distancing of six feet per person.”

The changes by CalPERS as to how it conducts its meetings will likely be imitated by other large pension systems across the United States as more states ramp up rules ending large meetings and put in social distancing edicts.

Most certainly, the rules will be put in place by CalPERS’ neighbor, the California State Teachers’ Retirement System (CalSTRS) in west Sacramento.

The configuration for board members in the CalPERS auditorium is tight, putting board members only several feet from each other at most.

Frost’s plan does not have the board sitting in the auditorium in a reconfirmed seating scheme. Instead, it puts the board members in a conference room, along with key CalPERS officials and board consultants.

The public will be in the auditorium without the board members.

“All other attendees will be housed in the auditorium where they can observe through live streaming,” Frost said.

She said to handle public comment, those speaking to CalPERS board members will be asked to join the board in the conference room—but one at a time.

CalPERS officials did not respond to requests for comment on the new plan.

The CalPERS Investment Committee meeting set for Monday is the first since November and the first since financial markets have seen a severe downturn due to the coronavirus outbreak.

CalPERS Board President Henry Jones told CIO that it was essential that the meeting be held so board members could get an update on investment matters. He said meeting format changes were being made to ensure the safety and health of both board members and the public.

“We are concerned about coronavirus,” he said.

CalPERS had more than $400 billion in assets as recently as the week of Feb. 16. The following week, as stock markets reacted to coronavirus fears, CalPERS was down to $385.15 billion.

The latest pension plan data as of Wednesday shows assets had dropped to $371 billion.

The data did not include stock market results from Thursday, when the Dow Jones Industrial Average suffered a nearly 10%overall loss, the worst day since the 1987 stock crash.

Jones would not comment on pension plan financial data.

Pension plan losses expected to be detailed by CalPERS Chief Investment Officer Ben Meng on Monday won’t be pretty. While the plan has disclosed total assets, it has not broken down equity losses.

The last time CalPERS disclosed its stock results was on Dec. 31, when the pension had $206 billion in its equity portfolio. Equity losses have been estimated at more than $30 billion since then, excluding the Thursday losses.

Losses on Thursday alone were likely to amount to around 10% of the remaining equity portfolio, meaning as much as $17 billion, said J.J. Jelincic a former CalPERS board member and investment staffer for the pension system.

Jelincic said that given the size of CalPERS, its equity market losses are going to be similar to overall market drops.

That would mean that CalPERS’ equity portfolio has dropped by around $50 billion in a little over two months.

CalPERS is only around 71% funded and severe declines in assets could meet an increase in the system’s unfunded status and require even more contributions from cities, towns, school districts, and the state. Those groups have seen recently rate hikes of as much as 20% due to past pension system losses and lowered expectations as to what the pension plan expects to earn in the future.

Cities and towns in particular have expressed concern about bankruptcy or having to lay off employees to cover their CalPERS bills.

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Tags: CalPERS, Coronavirus, Gavin Newsom, Marcie Frost, Pension

North Carolina State Treasurer Dale Folwell has taken heat in the past couple of years for what some have said is an overly conservative investment approach. Critics said the pension fund was missing out on a charging bull market when he moved billions of dollars from equities into fixed income.

But Folwell’s slow-and-steady-wins-the-race approach now looks quite prescient amid a global markets crash that shows no signs of abating.

While many of the world’s largest pension funds have been hammered over the past couple of weeks by plummeting global markets, North Carolina’s $105.6 billion state pension fund has fared far better than its peers thanks to the fund’s conservative investing approach.

At the end of last week, when many of the largest pension funds and sovereign wealth funds were down as much as 6%, North Carolina’s state pension fund was down less than 1%. And although the pension fund is now down at least 2.7% as the markets continue to plummet this week due to coronavirus fears and plunging oil prices, the fund is still doing much better than other major institutional investors.

For example, the California Public Employees’ Retirement System (CalPERS) has lost approximately $29 billion, or more than 7% over the past two weeks, with its asset value falling to $370.99 billion as of market close on Wednesday. And the $250 billion California State Teachers’ Retirement System (CalSTRS) said the market downturn “took about 4% off our total return,” according to CIO Chris Ailman—and that was before this week’s market bloodbath.

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Norway’s Government Pension Fund Global, which a couple weeks ago reported record 2019 returns of $180 billion, has since lost well over $100 billion, or more than 10% of its value, as the world’s second-largest pension fund’s value fell from $1.07 trillion to $961.4 billion as of Wednesday. According to a report from The Guardian newspaper, UK pension funds lost an estimated 5% to 6% of their value, also before this week. And the S&P is down over 25% over the past month alone as of Wednesday.

In an interview with CIO, Folwell attributed the fund’s ability to withstand the tumbling markets better than others to conservative investing from his investment team and a strong funded position. The state’s Local Governmental Employees’ Retirement System has a funded ratio of 90%, and the Teachers’ and State Employees’ Retirement System has a funded ratio of 86.4%.

“All the credit goes to the team—we have co-CIOs who have between them over 50 years of experience in the business,” Folwell said. “This has been a very conservatively managed plan, and, for the most part, as our equities have declined, our fixed-income portfolio has gone up to offset much of that.”

Over the past couple of years, Folwell has shifted approximately $11 billion worth of equities in the fund to fixed-income investments. And he took a lot of criticism in doing so during a bull market that showed no signs of waning.

In a blog post this past December, Andrew Silton, the former CIO of the North Carolina Retirement System, was critical of Folwell moving the pension fund out of alternative investments.

“While it is certainly appropriate for the treasurer to question the efficacy of alternative investments and engage in a refinement of strategies and the pace of investments, it appears that Treasurer Folwell slammed the brakes on these investment efforts,” Silton wrote. “This is bad news for the pension.”

And in a January 2019 Wall Street Journal commentary, Mene Ukueberuwa wrote that “true to his word, Mr. Folwell halted new investments in private equity and reduced fees by shifting funds into cash and bonds. But by year’s end those savings were dwarfed by the potential earnings the fund missed as the private and public markets surged.”

But Folwell has shrugged off the criticism, saying that the critics only focus on returns, which he said is only one of three main priorities he’s concerned about.

“We have three legs of our pension stool: We got risk, we got return, and we got the ability to fund,” he said. “When you have one of the largest pools of public money in the world that nearly one out of 10 adult North Carolinians are depending on, either now or sometime in the future, you can’t be a gambler, and you can’t profess to have a crystal ball.”

A big reason the North Carolina state pension fund has been able to take a conservative approach is because of its high funded levels. According to Moody’s Investors Service, North Carolina’s Retirement Systems is the best funded in the US in terms of its adjusted net pension liability. And according to The Pew Charitable Trusts, North Carolina “shows especially well” in stress test analysis thanks to a strong funding policy and funding levels.

“The people who teach and the people who protect and otherwise serve our citizens, they don’t wake up thinking about asset allocation models and assumed rates of return,” Folwell said. “They want to make sure that the pension plan that they have worked for for 30 years is going to be there to support them.”