Modest Results for Public Pensions

As you probably already know, I’m always interested in the goings-ons at large institutional investors.


This week yielded two interesting stories, one from each of the two largest California public pensions, Calpers and Calsters (the public employees and the teachers).


Calpers, the larger of the two, manages $295 billion and lost -0.6 percent during their calendar year, which ends on June 30.


Broadly speaking, the portfolio is relatively conventional, with 60 percent in stocks, 20 percent in bonds, 10 percent in ‘real assets’ (mostly real estate), and the rest on what you might call ‘other.’  (Click here to see their asset allocation).


Calsters fared a little better, earning 1.4 percent.  Their base asset allocation is similar, with a little more in stocks and real estate and less in bonds and ‘other’ assets.  (Click here to see their allocation).


The performance differential may seem small, but when you apply it to these giant portfolios it adds up.  If Calpers made as much as Calsters, it would have meant another $5.9 billion in their coffers.


Conversely, if Calsters had lost as much as Calpers, it would have cost them $3.8 billion.


Both pensions have long-term expectations of 7.5 percent per year in returns, although neither of them obviously expect that every year.  I like how the Calsters Chief Investment Officer, Christopher Ailman, summed it up: we look at performance in terms of decades, not years.