Calpers records first loss since 2009 in ‘tumultuous’ markets

Calpers, the largest public pension plan in the US, has blamed “tumultuous” global markets for the fund’s first annual loss since the global financial crisis in 2009.

The California Public Employees’ Retirement System, which manages pension and health benefits for 2mn California public employees, retirees, and their families, reported on Wednesday a preliminary 6.1 per cent loss for the financial year to June 30. At year end, its total assets stood at $440bn, down from $469bn a year ago, with the plan’s funded status slipping to 72 per cent from 80 per cent in the previous period.

In reporting the loss, Nicole Musicco, chief investment officer, said the plan’s traditional diversification strategies had been “less effective” than expected over the reporting period.

“This is a unique moment in the financial markets and we’ve seen a deviation from some investing fundamentals,” said Musicco, who started in her role in March this year.

“For instance, our traditional diversification strategies were less effective than expected, as we saw both public equity and fixed-income assets fall in tandem.”

Calpers reported a 13.1 per cent loss on its investments in global public stocks while fixed-income investments returned a 14.5 per cent loss.

In contrast, Calpers’ private market allocations fared “much better” with private equity and real assets returning 21.3 per cent and 24.1 per cent respectively.

In spite of a “challenging year”, Calpers said it was able to outperform its total fund benchmark by 90 basis points.

“These are bright spots that we can build on as we implement our new strategic asset allocation and increase our exposure to private market assets,” said Calpers.

The sharp turn in investment performance for Calpers — which is funded by contributions from employers, employees and investment returns — comes a year after the plan reported a 21.3 per cent net return.

That strong performance enabled the scheme to shake up its portfolio including announcing a deeper move into private markets amid a dimming outlook for public market returns.

Musicco joined Calpers six months after the fund adopted its new asset allocation that increased its private equity investments from 8 per cent to 13 per cent and added a private debt allocation of 5 per cent. Calpers also added 5 per cent leverage to its investment portfolio to increase diversification.

“We’ve done a lot of work in recent years to plan and prepare for difficult conditions,” said Calpers chief executive officer Marcie Frost.

“Despite the market conditions and their impact on our returns, we’re focused on long-term performance and our members can be confident that their retirement is safe and secure.”

The loss for Calpers comes as investors operating traditional 60/40 equity/bond portfolios have been tripped up by global stocks and bonds falling in tandem in the first quarter, with these two markets that underpin global finance seldom correlated.