Wednesday, December 29, 2021

USA
CalPERS, nation’s largest pension fund, hits $500B in assets


December 28, 2021

The California Public Employees’ Retirement System is a $380 billion public pension fund.


Jay Mather
Sacramento Bee file
DECEMBER 29, 2021


CalPERS’ market value has reached $500 billion for the first time, a new landmark for the nation’s largest pension fund.

Pension plan statistics show the retirement plan reached $501.63 billion as of Monday night, following a 1.4% increase in the S&P 500 stock index and another 1.4% increase by the Nasdaq. The S&P increase took the stock index to its highest level ever.

Around 50% of CalPERS assets are invested in equities, meaning that stock market swings in the downward direction could quickly drop assets back under $500 billion.

Still, overall upward stock trends have largely been responsible for the rapid market value growth of the CalPERS portfolio in a short period of time.

The pension system’s portfolio reached $400 billion on January 16, 2020 – growing by $100 billion to $500 billion in less than two years’ time.

CalPERS still faces major financial challenges even though its funding level is increasing. The pension plan is estimated to have 80% of the assets it would need to pay claims long-term as of June 30, 2021.

CalPERS CEO Marcie Frost put a positive spin on the asset growth in a statement.

“We’re a long-term investor,” said Frost. ”We plan for successes over years, not one month or one quarter. Our funding level has grown steadily to 80% over the last five years, and we’re on a clear and sustained path to full funding – 100%.”

Overall, CalPERS portfolio gains of more than 20% in the fiscal year ending June 30 2021, increased the fund’s estimated funding level by approximately 10% from a year earlier.

Still, CalPERS has an estimated funding shortfall of more than $120 billion.

A larger asset value of its portfolio also creates added challenges for a pension fund that its own consultants have described as a mega cruise ship–meaning the pension fund is so large that it’s hard to be nimble in making investments.

CalPERS is the largest pension fund in the U.S.

A larger fund also will require more money to be invested in asset classes, such as private equity, that are difficult to source quality investment opportunities.

CalPERS wants to increase its private equity investments because it is the pension fund’s best-returning asset class long-term and short-term. Private equity produced a 43.8% return in the latest fiscal year ending June 30, 2021, while equities showed a 36.3% return.

CalPERS four-year asset allocation starting in mid-2022 calls for its $44 billion private equity portfolio, 9.2% of the portfolio as of July 31, 2021, to go up to 13% of the overall portfolio.

That would mean at a $500 billion market value, CalPERS would need to find more than $21 billion more in private equity investments to meet its investment goal in an environment where there are limited top-quality private equity funds that pay the double-digit returns CalPERS hopes for.

When CalPERS assets were $480 billion on Sept. 30, 2021, it would have needed around $3 billion less to reach its private equity funding goal.


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