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CalPERS asset value drops over 23% year on year


Date: Thursday, July 23, 2009
Author: HedgeFunds Review

The California Public Employees' Retirement System (CalPERS) has released its preliminary 2008-09 investment performance, reporting a decline in the market value of its assets of 23.4% for the 12 months period ending June 30, 2009. This was the most severe single year decline ever for the group.

Even with the fall in assets, its long term 20-year investment return remained positive at 7.75%. During the same period world equity prices declined 29.3%.

The fall in the fund's market value of assets was due primarily to the impact of historic unprecedented declines in the global financial markets and the liquidity crisis.

"This result is not a surprise. It is about what we expected given the collapse of markets across the globe," commented Joe Dear, chief investment officer at CalPERS.

"The good news is we have the opportunity to capture future returns because of our long- term investment horizon. The system has more than enough cash through contributions and income from investments to meet our present liabilities, so we are in a good position to ride out the current downturn and come out stronger," noted Dear.

CalPERS said it was using a "disciplined and proactive approach to position the fund for investment returns while carefully managing investment risk."

At June 30, 2009 the market value of assets stood at $180.9 billion, down from 237.1 billion a year before.

CalPERS's efforts to position the portfolio include revising its asset allocation to maintain flexibility to make opportunistic investments in private equity, real estate and infrastructure and planning a fuller asset allocation and liability review in 2010.

The pension giant is also realigning relationships with hedge fund and private equity partners. This is expected to reduce fees.

At the same time CalPERS is undertaking a board-directed initiative to "advance new and innovative methods for risk management" across its operations. It intends to search for and execute "opportunistic investments resulting from market dislocations".

CalPERS recently filed a court action to recover losses from structured investment vehicles, alleging misrepresentation of the quality of the investment instruments by credit rating agencies (news story, July 16, 2009).

In a statement related with its preliminary results, CalPERS said it was "stepping up activism on the federal government front to influence financial market reform, federal regulation and corporate business practices that will effectively protect investors."

According to CalPERS changes in the market value of assets included an increase in cash returns of 1.4%. Global fixed income earnings were up 0.6% for the year while real estate fell by 35.8%, private equity by 31.4% and public stocks by 28.5%.

Inflation-linked assets (including commodities, infrastructure, forestland and inflation-linked bonds) fell 20.9% over the year.

The falls in real estate and private equity returns reflected market values through March 31, 2009 rather than June 30, 2009. Pending appraisals in real estate and valuation adjustments in private equity are expected to impact final year end performance.

CalPERS is the largest public pension fund in the US, administering retirement benefits for 1.6 million active and retired state, public school and local public agency employees and their families and health benefits for 1.3 million members.