CalPERS announced Wednesday that its investments returned -6.1% in the fiscal year ended June 30, the first annual loss since 2009. The benchmark return was -7%.
Investor have been on "a wild ride," said Nicole Musicco, CalPERS' chief investment officer, on a media call.
Dan Bienvenue, deputy CIO, total portfolio, said it was "a year of dichotomies" with the first half of the fiscal year reflecting buoyant markets and second half markets battered by inflation, central banks raising rates and geopolitical risk.
Going forward, CalPERS officials plan to focus more on active risk in the public markets. In private markets, CalPERS is in the midst of the "great catch-up," Ms. Musicco said, building upon its private equity, real estate and infrastructure portfolios with more co-investments.
Depending on market opportunities and CalPERS' in-house capability to execute co-investments, Ms. Musicco said her goal is to have a 50-50 split between co-investments and other types of private market investments in three to five years.
The California Public Employees' Retirement System, Sacramento, saw its global public equity portfolio drop 13.1% over the fiscal year, while fixed income was down 14.5%. Those assets make up 79% of the total portfolio. Overall assets ended the year at $440 billion, according to a news release from the pension fund.
CalPERS' real estate portfolio returned 24.1%, while private equity portfolio earned 21.3%. CalPERS' liquidity portfolio returned 0.3%, above its 0.1% benchmark.
The pension fund outperformed its benchmark by nearly a full percentage point for the year. Public equity did slightly better than its -13.2% benchmark and fixed income was flat against its benchmark.
Real assets underperformed the 27.1% benchmark by 3 percentage points, while private equity handily outperformed its 8.3% benchmark by 13 percentage points.
Over longer-term period, CalPERS returned an annualized 6.7% for the five years ended June 30, 7.7% over 10 years, 6.9% over 20 years and 7.7% over the past 30 years. CalPERS returned 21.3% the prior fiscal year, trailing many of its large public pension fund peers.
The latest fiscal-year return caused its funded status to drop to 72% from about 82% at the end of fiscal year 2021. CalPERS has a 6.8% expected rate of return.
The private market returns are lagged by three months. CalPERS will not be announcing the fiscal-year returns for its private market strategies until November.
When asked whether private markets returns will still outperform when the full fiscal-year numbers are released, Ms. Musicco said that she wished she had a crystal ball. Staff has taken a look at the private markets diversification and the portfolios exposure to managers overall, which drove a recent sale of $6 billion worth of alternative investment limited partnership interests, she said. Ms. Musicco added that what she could say with confidence is that CalPERS' private market portfolios are well-diversified and what is going on in those portfolios are "top of mind for us."
CalPERS’ asset allocation as of June 30 was 50% public equity, 28% fixed income, 13% real assets and 8% private equity. The new asset allocation that went into on July 1 cut global equity by 8 percentage points to 42% and reduced liquidity by 1 percentage point to zero. The new asset allocation makes a bigger bet on private assets, adding a 5% private debt target, while also boosting private equity by 5 percentage points to 13% and increasing real assets by 2 percentage points to 15%. The new allocation also increases fixed income by 2 percentage points to 30%.
