Largest Public Pensions Report 18% Return

The California Public Employees’ Retirement System (CalPERS) reported a preliminary 18.4% return on investments for the 12 months that ended June 30, 2014. CalPERS had more than $300 billion in assets at the end of the fiscal year.

The gain marks the fourth double-digit return the pension fund has earned in the last five years. Returns were led by strong performances by CalPERS global public equity and real estate investments. Investments in domestic and international stocks returned 24.8%, outperforming the CalPERS custom public equity benchmark by 0.5%. Investments in income-generating real assets like office, industrial, and retail assets returned 13.4%, outperforming the pension fund’s benchmark by 1.6 percentage points.

The California State Teachers’ Retirement System (CalSTRS) closed the 2013-14 fiscal year with an 18.66% return on its investments. Its portfolio was valued at $189.1 billion as of June 30, 2014. 

CalSTRS second consecutive double-digit performance follows a 13.8% portfolio return in FY 2012-13. That was preceded in FY 2011-12 by a flat 1.8% return. In FY 2010-11 and FY 2009-10, CalSTRS posted impressive returns of 23.1% and 12.2%, respectively. In contrast, the recession years of 2007-08 and 2008-09 saw returns of -3.7% and -25%.

The Global Equity asset class fiscal year return is 24.73%, 0.51% over CalSTRS Global Equity Benchmark. The Private Equity asset class return is 19.61%, and the Real Estate asset class returned 14.52% for the fiscal year.

Both funds’ returns are well above their discount rate of 7.5%—the long-term return required to meet current and future obligations. CalPERS' 20-year investment return is 8.5%, while its return since 1988 is 8.9%. CalSTRS' 20-year investment return is 8.4%.

CalPERS current funding level—the amount of assets CalPERS has to pay current and future benefits—is estimated to be 76% as of June 30, 2014, based on the recent earnings. CalSTRS funding level is 67%.