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What The Naysayers Won’t Tell You About CalPERS

For the last year, there have been calls for retirement and pension reform out of the Editorial Board from the Contra Costa Times, the Tea Party and other folks who are calling for reform on CalPERS. Unfortunately, these folks are not looking at the big picture and giving you just a slice of the information. When you look at the big picture, there has been a 21 percent rate of return in the last few years resulting in a annualized 7.7 return over 20 years.

I wanted to provide you with information provided right out of the CalPERS October newsletter.

While I’ve been accused of taking sides,  I take sides based on information. Read it for yourself and decide. It’s easy to write an opinion when part of the story is left out. Below is taken directly out of the CalPERS newsletter which is pretty telling, those opposing it are very short sighted and are worrying about the last few years.  You never want to make decision or adjustment to the rules while looking at just a snap shot (in this case, a few years) as opposed to the big picture which is over a long period of time. Look at the twenty year return!

It’s time people give credit to the experts who do this for a living 24/7 instead of drive by reporting or naysayers posting on blogs with fake names.  Over a period of time, these folks have done a good job!  Just give it some time and stop paying attention to the rhetoric, look at the long term figures!

Facts are funny things and should not be ignored as we should not ignore the facts in order to make up the rules as we go because of a bad year or so. Stay the course, as the economy improves, the investments will pay off.

Via the Newsletter:

CalPERS Investments Update

While last year’s investment results fell short of our expected long-term annual average return of 7.5 percent, our 20-year average annual return is a solid 7.7 percent. For pension funds, it is long-term investment performance that matters, not one or two years of results, which can be well above or below our projected long-term average.

For example, we earned a 21.7 percent return a year earlier.

“The last 12 months were a challenging period for all investors as the ongoing European debt crisis and slowing global economic growth increased market volatility and reduced equity returns,” said CalPERS Chief Investment Officer Joe Dear.

Following the financial crisis and Great Recession, CalPERS restructured pension fund investments to reduce asset value volatility and increase liquidity. CalPERS real estate investments were a particular bright spot last year, returning 15.9 percent, which exceeded our
benchmark by more than 3 percent.

The CalPERS pension fund is currently valued at approximately $240 billion. The fund value has risen by about $75 billion since the recession low point of $160 billion in March 2009.

Investing for the Long Term

We predicted a low return in a volatile market.

CalPERS is a long-term investor. As a long-term investor, we fully expect a range of possible returns every year. Occasionally returns will be negative, and occasionally returns will be wildly high, such as last year’s 21.7 percent gain. This year, based on poor market conditions, we expected returns of around 1 percent, and that’s what we earned; just shy of our 1.7 percent benchmark goal.

Historically, CalPERS has regularly outperformed our long-term 7.5 percent goal over a 20-year average. If you look at our 30-year average, we exceed 9 percent.

We posted gains not just in excess, but in significant excess, of 7.5 percent 13 times in the past 19 years.

One year of performance should not be interpreted as a signal about our ability to achieve our investment goals. We are long-term investors, and we use investment strategy to reach our long-term goals. The key to having a strategy is working with it. The worst mistake is to abandon the strategy as soon as it appears to have some trouble.

Our strategy is working. We’ve made up millions of dollars in losses that occurred when the market bottomed out in 2008-09. This year, our real estate portfolio managers have turned losses into gains.

We will look at managers who underperformed, and we will adjust our approach to cope with continued volatility in the markets.

How does our one-year return impact employer and employee contributions? This year’s 1 percent return will be reflected in employers’ contribution rates two years from now. Just as when we have large gains, losses are also spread over 30 years to ensure employer rates remain as stable and predictable as possible. Any increases due to this year’s returns will be very small. Changes in employee contribution rates are undertaken in collective bargaining and are not adjusted based on high or low investment returns in any given year.

Here is the PDF: Calpers Newsletter

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7 Responses »

  1. Wow Burk! Let’s hope this sheds some light on the “scare tactics” and incorrect assumptions employeed by the doom and gloom crowd…Specifically; Dan Borenstein, Dave Roberts, Kris Hunt and that John Gonazales guy.

    They seem to hand pick the info they want and then form extremly slanted opinions. They have gotten out of control. Thanks for injecting a little dose of reality to these individuals. I doubt it will help (they are pretty entrenched) but at least you are trying. This document shows a 180 degree turn from the BS they have been trying to convince us of.

    I will always trust the experts that do finanace for a living, rather than monday morning quarterbacks employed by a liberal rag. I wonder how Dan Borenstein or Kris Hunt’s retirement portfolios are doing? (or if they even have them). They are clearly out of their league when it comes to forecasting economic returns.

    I am so glad I dumped my subscription to the Times a few years ago. Nothing but bias churning out of the editorial board.

  2. Burke, you sir are a hypocrite. You want to talk about half the story, then share what they have done the last two years and get back to me.

    • @ Jill,
      You mam are confusing! (Your post makes no sense). Typical.
      Please read the article and economic forecast “completely” and then get back to us.
      Hint: it was about the long term …..not one or two year snapshots. You do get that right???

      • Burke is a hypocrite because he talks about the entire picture but is ignoring the last few years where they have screwed up the system and have cost millions. I really wish you people would not blindly follow Burke on some of his unwarrented rants.

  3. I’m not sure I totally believe either side but thanks Burke. By the way are Lori and Jill related?

  4. I am really enjoying Jill and her trusty sidekick (Lori) question an official document. Factual content seems to be nothing more than an obstical between these two.

    …..but the real kicker is how they try to somehow “blame” Burk for a reality neither can comprehend. Ladies, do you realize just how ridiculous you look? Guess not. You seem to me like the type of individuals that think the world is flat (because maps are flat!) and that whole man landing on the moon thing was staged. Time to loosen up those tin foil hats and accept that the worlds largest retirement firm probably knows a little more than you do….or a second rate, 50 thousand dollar a year newspaper writer with pension envy (Dan Borenstein).

  5. Thanks for posting this article. When I read it (yes, we live on a PERs retirement and no its not one of those $100,000) the one thing that I thought that should have been part of the article was the number of cities and other agencies that deferred their PERs payments and now owe PERS millions. but that part of the pension story isn’t being told. Its easier to blame public safety for the pension issues.

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