The California Public Employees Retirement System (CalPERS), the most massive pension plan in the US, has lost more than $15 billion in assets under management during an 11-day stock market slide- January 26 to February 9th.
The pension system’s chief investment officer, Ted Eliopoulos, speaking at the system’s Investment Committee in Sacramento on Monday, said that the retirement plan lost $15 billion which accounts for a 4.6% drop in AUM for the pension fund during the recent market decline. He went on to say that CalPERS’ AUM stood at $345 billion as of February 9.
Attempting to shield the fund’s recent performance from criticism, Mr. Eliopoulos claimed that the pension plans diversified portfolio saved it from even more severe losses due to market declines. His example was that the S&P 500 index lost 8.7% during the same period. Also, he indicated he believes that the years of low market volatility may be coming to an end saying “Now looking forward to 2018...we’re seeing the beginning of the market environment that may be shifting.”
It is not likely that anyone knows what lies in store for the rest of 2018 and beyond, but Eliopoulos insisted on his view that stock market volatility was the norm. Furthermore, he explained that stock market declines of more than 10% were in fact “not unusual” when a historical view of the stock market is observed.
The strong stock market performance in 2017 allowed the pension fund system to experience a 24% return - becoming the most influential performing asset class for the fund. Private equities were the second-best performing asset class in 2017 with an 18% return. Both stocks and private equity were under the fund benchmark fund weight of 24.4% and 22.9%, respectively.
Fixed income asset class for the fund produced 7.2% in returns for 2017, beating its benchmark of 6.4%. Real assets, which include real estate infrastructure, posted 8.5% return in 2017, surpassing their common 6.4% benchmark. Inflation-sensitive asset class- including inflation-linked bonds and commodities (futures, forwards, swaps, structured notes, and options) had a 6.3% return, beating the benchmark’s 6. 2% return.
Mr. Eliopoulos noted on Monday that going forward returns may not be as high for the pension system. He explained that the projected expected returns for the next decade were in the low 6% range. CalPERS is in the process of lowering its benchmark from 7.5% to 7%. Mr. Eliopoulos indicated that bringing in more contributions from employers and ending the practice of CalPERS selling off assets to pay for pension beneficiaries will be the fund's new approach.
In 2016, the pension fund had to sell off $4 billion in assets to make a beneficiary payout totaling $20.5 billion, $4 billion more than the fund had on hand.