CalPERS rose 5.8% in its latest fiscal year as rising stock markets and private debt buoyed the nation’s largest traditional public pension fund.
Preliminary earnings for fiscal 2023, reported this week, are a sharp turnaround for the California Public Employees’ Retirement Plan, which lost 6.1% in fiscal 2022, the worst figure in more than a decade. The gain brings CalPERS’ holdings to $462.8 billion, sufficient to cover 72% of its future debt, unchanged from the previous year.
This will be the first full year since CalPERS ramped up its private equity investments with a $25 billion bet, while increasing its use of leverage and allocation to private debt. The results were mixed. Returns for the year ended June 30 were driven by 14.1% gains in public equities and 6.5% gains in private debt as private equity fell 2.3%, real assets fell 3.1% and bonds remained flat.
“It was really a story of two stories,” said Nicole Mujiko, chief investment officer at CalPERS. “We were flat in the first half of the year, but caught up in the second half.”
Calpers is trying to regain ground after being shaken by a series of management changes. The firm has relied on Muzico’s alternative assets, which were taken from a Canadian pension fund last year, as it seeks to meet an annual return target of 6.8%. If there is a shortage, municipalities across California may have to cut services to meet their pension obligations.
The preliminary five-year average return is now 6.1%, down from 6.7% last year. The 10-year average is 7.1%.
The latest results reflect a slowdown in the private equity market, where rising interest rates have ended years of easy deals. CalPERS private equity losses followed prior year gains of 3.3% and 44%. The Fund’s Private Equity, Private Debt and Real Assets data are reported quarter-lagged and are current as of March 31.
Muzico expects a “downward tailwind” to hurt private equity returns when those numbers update, but remains bullish on the asset class.
“There is a very large menu of opportunities in private equity,” Mujiko said in a call with reporters.
CalPERS Chief Executive Mercy Frost said the pension fund remains focused on “fulfilling its long-term retirement commitments to its members and their families.”
The California Teachers Retirement Plan, the second-largest pension fund in the United States, has yet to release its 2023 results. CalSTRS Chief Investment Officer Christopher Eilmann said earlier this month that he expects a “high-single-digit year” below the benchmark 7%.