California public pension fund loses $29 billion in market downturn

California Public Employees’ Retirement System says it lost 6.1% over last 12 months, its first loss in more than a decade.

Updated: July 20, 2022 - 11:30pm

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The California Public Employees’ Retirement System (CalPERS) announced Wednesday a preliminary -6.1% net investment return for the 12-month period that ended June 30, representing its first loss in more than a decade.

CalPERS said Wednesday that “tumultuous global markets” played a role in the system’s first loss since the 2009 financial crisis. Factors like “volatile global financial markets, geopolitical instability, domestic interest rate hikes and inflation” impacted public market returns, CalPERS wrote in a news release.

“We’ve done a lot of work in recent years to plan and prepare for difficult conditions,” CalPERS Chief Executive Officer Marcie Frost said in a statement. “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.”

CalPERS’ private market investments did better than its public market investments over the last year. CalPERS announced Wednesday that its investments in public equity returned -13.1% and fixed income investments returned at -14.5%. Meanwhile, the system’s private equity investments returned at 21.3% and real assets returned at 24.1%.

Public market investments make up the majority – about 79% – of the CalPERS total fund, according to the system.

Investment returns play a large impact on pension system funding – meaning that a bad year of investment returns can have an impact on unfunded pension liabilities. CalPERS estimates that with a “discount rate of 6.8% and this year’s preliminary return of -6.1%, the estimated overall funding status stands at 72%.”

When a plan is underfunded, pension systems only have a few options to address it. They can either hope to earn more in the stock market or raise contribution rates for employees and employers, which means taxpayers in the case of public pension plans.

In November 2021, the CalPERS board lowered its market expectations, which in turn, meant certain employees would have to contribute more to their pension funds because the fund expected to earn less from its investments. The contribution changes primarily impact employees hired after January 2013, taking effect for school employees (excluding teachers) this month and most other local government employees in July 2023.

In a report released last week by the Reason Foundation, CalPERS’ unfunded pension liabilities were projected to rise from $101 billion in 2021 to $159 billion in 2022 if investment returns came back at -6%.

CalPERS is the largest public pension fund in the nation. At the end of the latest fiscal year, assets stood at $440 billion, CalPERS wrote in a news release.