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CalPERS RE outperforms benchmark

The chief investment officer for the US’s largest pension fund emphasized long-term performance over short-term results on Friday media call.

The California Public Employees’ Retirement System posted a preliminary 11.2 percent return for the 12 months ending June 30, which came in 0.15 percent under its benchmark, PERE's sister publication, Private Debt Investor, reported Friday.

The $323 billion retirement plan’s preliminary returns over a five- and 10-year time frame at 8.8 percent and 4.4 percent, respectively. That same figure was 6.6 percent over a 20-year period. The plan had a funded ratio of 68 percent.

The 2017 fiscal year preliminary results are a noted increase from the returns posted during the previous fiscal year, which amounted to 0.6 percent, according to the 2016 comprehensive annual financial report. The five- and 10-year returns for the period ending June 30 2016 were 6.9 percent and 6.8 percent, respectively.

“We don’t get any too excited by any one year of returns; we believe that long-term returns are” more important, chief investment officer Ted Eliopoulos said on Friday's media conference call.

The asset-specific returns for alternative investments varied relative to their goals.

The real assets portfolio, which includes real estate, infrastructure and forestland, returned 7.4 percent, 0.43 percent above its index. CalPERS created the larger real assets category in April because the three strategies shared similar investment characteristics.

Real estate outperformed its goal by 0.24 percent, returning 7.6 percent. CalPERS changed its current real estate benchmark in April from the National Council of Real Estate Investment Fiduciaries’ Open-End Diversified Core Equity, to another US core fund index, the MSCI Investment Property Databank.

When asked about real estate’s outperformance on the media call, Eliopoulos said the pension fund will have a deeper review of the asset class at its August meeting.

Private equity, which includes CalPERS’ private credit investments, posted a 13.9 percent return, which was 6.4 percent under its benchmark. Results for the private equity portfolio are through March 31, as the numbers are delayed by one quarter.

“It’s particularly difficult to compare a private asset class against its benchmark which is a public-asset-class benchmark,” Eliopoulos said of the private equity returns. “It generally gives us a mismatch on a one-year basis,” adding that the fund puts an emphasis on longer-term returns, some of which have outperformed CalPERS’ public equity portfolio.

The preliminary three- and five-year returns for private equity through March 31 are 8.1 percent and 11.5 percent, respectively. The 10-year return figure stood at 9.3 percent, a CalPERS spokeswoman told Private Debt Investor in an email.

Infrastructure returned 9.9 percent, 3.45 percent above its benchmark, while forestland returned 1 percent, 2.68 percent below its index.

— Rob Kotecki and Meghan Morris contributed to this report.