CalPERS’ Reports First Loss Since 2009

By David G. Barry

For the first time since the global financial crisis of 2009, the California Public Employees’ Retirement System (CalPERS) has reported its first fiscal year loss.

The Sacramento, Calif., system announced a preliminary negative 6.1% net return on investments for the 12-month period ending June 30, and assets under management of $440 billion. For the 2020-21 fiscal year, CalPERS reported a positive 21.3% return and had assets of $469 billion. The system’s overall funded status stands at 72%.

It is worth noting, though, that CalPERS for the 2021-22 fiscal year outperformed its benchmark which was at negative 7%. In 2020-21, it actually lagged its benchmark of positive 21.7%.

CalPERS has generated a gain of 6.7% over the past five years, 7.7% over 10 years and 6.9% for 20 years.
In a conference call, Deputy Chief Investment Officer Dan Bienvenue said “the main driver” of the negative results was the downturn in public markets, which accounted for 50% of CalPERS’ portfolio. Thanks to an array of factors including volatile global financial markets, geopolitical instability, inflation, and the Fed’s hiking of interest rates, the system’s global equity portfolio was down 13.1%.

Bienvenue, who served as interim CIO through most of the fiscal year, described 2021-22 as a “dichotomy” between the “buoyant” first half and what occurred in the second half.

CalPERS also was not helped by the fact that fixed income – usually an offset to stocks – also was down. Fixed income accounted for 28% of the system’s portfolio and was down 14.5%.

The one thing that kept the results from being worse were the returns from private markets. CalPERS’ private equity portfolio had a 21.3% return while real assets generated 24.1%. Private market results are three months behind, so those numbers are through March 31.

Also on the conference call, Nicole Musicco, who recently joined CalPERS as CIO, said that a portion of its recent $6 billon secondary sale of private equity stakes were included in the year-end numbers.

Going forward, said Musicco, the focus going forward will be “on maintaining and strengthening the portfolio through innovation, strong governance and accountability.”

To that end, she said a “bunch of time” is being spent to ensure that organizational charts are positioned appropriately to deal with CalPERS’ new asset allocation.

Approved in November and in effect on July 1, the plan calls for CalPERS to decrease its target to global equities from 50% to 42%, fixed income from 30% to 28%, and real assets from 15% to 13%. Meanwhile, its private equity target will rise from 8% to 13% and private debt will go from zero to 5%.

Musicco added that the plan will be looking to “innovate” in terms of its public assets while taking advantage of “the great relationships” the private markets team has built to do more co-investing with its private equity, real estate and infrastructure managers. Musicco said her goal would be for 50% of private markets investments to be tied to co-investing.

As for how CalPERS’ private markets portfolio might fare going forward, she said she felt “confident” in what is occurring in the portfolio and its “diversification.”