August 25, 2014

Beverly Hills Courier staff wrote numerous inaccuracies in their recent article, "City $212 Million Short On Pension Obligations To Employees." For starters, the CalPERS assumed rate of investment return is 7.5 percent. This is not an arbitrary number, but rather one that is carefully thought out by CalPERS actuarial and investment staff after analyzing current and future liabilities, member demographics, financial market conditions, and asset allocation structures, among other factors.

The Courier also cites a recent Wall Street Journal article which identified what it saw as changes in CalPERS' investment strategy. While the article makes several specific claims, the real takeaway should be that CalPERS learned many lessons in the wake of the financial market collapse and the Great Recession.  As any investor would do after a significant downturn, CalPERS began an effort to review its portfolio and operations, and make changes where appropriate, to ensure that it was better prepared to deal with a similar event in the future.

Furthermore, the CalPERS investment portfolio is hardly overloaded with “speculative” investments. More than half of the System’s approximately $300 billion in assets – about 54 percent – is invested in publicly traded stocks, while 15 percent is in fixed income bonds, 10 percent in real estate, another 10 percent in private equity, and 3 percent in cash. Less than 2 percent is invested in commodities indexes, which you note as "tradable indexes linked to food, energy, metals…"

Any investment strategy changes will neither change our return requirement of 7.5 percent, nor our confidence in our ability to achieve that return. In fact, CalPERS’ average return for the past 20 years is 8.4 percent, easily surpassing our assumed return of 7.5 percent.

CalPERS’ goal is greater sustainability and soundness of the Fund. We have taken numerous steps in the past year to help CalPERS meet its pension obligations to current and future members. We have worked to balance our assets and liabilities to achieve appropriate levels of risk in our investment portfolio, and adopted policies to help stabilize employer rates and the volatility of those rates year to year.