Calpers Posts 5.8% Gain Helped by Stocks and Private Debt
P3
PUBLIC PENSIONS FUND PRIVATIZATION
Eliyahu Kamisher
Wed, July 19, 2023
(Bloomberg) -- Calpers swung to a 5.8% gain in its latest fiscal year as the stock market rally and private debt buoyed the largest traditional public pension fund in the US.
The preliminary return for fiscal 2023 reported on Wednesday is a sharp turnaround for the California Public Employees’ Retirement System, whose 6.1% loss in the prior year was its worst showing in more than a decade. The gain left Calpers holding $462.8 billion, enough to cover 72% of its future obligations, unchanged from a year earlier.
It’s the first full fiscal year since Calpers ramped up its private equity investments with a $25 billion bet, while increasing the use of leverage and allocations to private debt. The results were mixed. Returns for the year ended June 30 were driven by a 14.1% surge in publicly traded stocks and 6.5% on private debt, as private equity slipped 2.3%, real assets dropped 3.1% and bonds remained flat.
“It really was a tale of two stories,” said Calpers Chief Investment Officer Nicole Musicco. “The first half of the year we were flat, and then caught up in the second half.”
Calpers is trying to make up lost ground after being rocked by successive management changes. It’s been leaning on alternative assets under Musicco, who was recruited from a Canadian pension fund last year, amid pressure to meet an annual return target of 6.8%. If there’s a shortfall, municipalities across California could be forced to cut services to meet pension obligations.
The preliminary five-year average return now stands at 6.1%, down from 6.7% the previous fiscal year. The 10-year average is 7.1%
The latest results mirrored a slowdown in private equity markets as higher interest rates ended years of easy deal-making. The loss from private equity for Calpers followed gains of 3.3% and 44% in preceding years. The fund’s data for private equity, private debt and real assets are reported on a one-quarter lag, and were current as of March 31.
Musicco expects a “downward tailwind” to hurt private equity returns when those numbers are updated, but she remained bullish on the asset class.
“There’s such a huge menu of opportunity within private equity,” Musicco said in a call with reporters.
Calpers Chief Executive Officer Marcie Frost said her fund is maintaining its focus “on meeting the long-term retirement promises made to our members and their families.”
The California State Teachers’ Retirement System, the second-largest US pension fund, has yet to release its fiscal 2023 results. Earlier this month Calstrs Chief Investment Officer Christopher Ailman said he expects an “upper-single-digit kind of year” that falls short of its 7% benchmark.
(Updates with executive comments and return data starting in the fourth paragraph)
Most Read from Bloomberg Businessweek
Eliyahu Kamisher
Wed, July 19, 2023
(Bloomberg) -- Calpers swung to a 5.8% gain in its latest fiscal year as the stock market rally and private debt buoyed the largest traditional public pension fund in the US.
The preliminary return for fiscal 2023 reported on Wednesday is a sharp turnaround for the California Public Employees’ Retirement System, whose 6.1% loss in the prior year was its worst showing in more than a decade. The gain left Calpers holding $462.8 billion, enough to cover 72% of its future obligations, unchanged from a year earlier.
It’s the first full fiscal year since Calpers ramped up its private equity investments with a $25 billion bet, while increasing the use of leverage and allocations to private debt. The results were mixed. Returns for the year ended June 30 were driven by a 14.1% surge in publicly traded stocks and 6.5% on private debt, as private equity slipped 2.3%, real assets dropped 3.1% and bonds remained flat.
“It really was a tale of two stories,” said Calpers Chief Investment Officer Nicole Musicco. “The first half of the year we were flat, and then caught up in the second half.”
Calpers is trying to make up lost ground after being rocked by successive management changes. It’s been leaning on alternative assets under Musicco, who was recruited from a Canadian pension fund last year, amid pressure to meet an annual return target of 6.8%. If there’s a shortfall, municipalities across California could be forced to cut services to meet pension obligations.
The preliminary five-year average return now stands at 6.1%, down from 6.7% the previous fiscal year. The 10-year average is 7.1%
The latest results mirrored a slowdown in private equity markets as higher interest rates ended years of easy deal-making. The loss from private equity for Calpers followed gains of 3.3% and 44% in preceding years. The fund’s data for private equity, private debt and real assets are reported on a one-quarter lag, and were current as of March 31.
Musicco expects a “downward tailwind” to hurt private equity returns when those numbers are updated, but she remained bullish on the asset class.
“There’s such a huge menu of opportunity within private equity,” Musicco said in a call with reporters.
Calpers Chief Executive Officer Marcie Frost said her fund is maintaining its focus “on meeting the long-term retirement promises made to our members and their families.”
The California State Teachers’ Retirement System, the second-largest US pension fund, has yet to release its fiscal 2023 results. Earlier this month Calstrs Chief Investment Officer Christopher Ailman said he expects an “upper-single-digit kind of year” that falls short of its 7% benchmark.
(Updates with executive comments and return data starting in the fourth paragraph)
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