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CALPERS CA state pension fund finally reduces return expectations.
Old 11-18-2015, 10:05 PM   #1
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CALPERS CA state pension fund finally reduces return expectations.

A little political, so I posted here. They finally have acknowledged lower returns going forward , although the " plan " is to reduce over many years from 7.5 % to 6.5 % , the article says they have done 5.2% over the last 10 years if I read correctly , and is down 5% year to date.
Taxpayers will pay billions more as CalPERS lowers estimate of investment returns - LA Times.

My Municipal pension fund reduced expectations from 7.75 % to 7.5 %. In denial IMO. When it become an issue, the city shops for a new actuary .
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Old 11-18-2015, 10:14 PM   #2
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In a link provided in this thread, Bogle's 10-Year Forecast, Bogle was bent all out-of-shape when he mentioned that some pension funds were using optimistic market returns for budget projections. Obviously, Calpers was one of them.
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Old 11-19-2015, 05:33 PM   #3
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I have to be careful on this one because I am both a critic and a bit of a beneficiary with my wife collecting Oregon PERS. Tier 1 guarantees 8%. Pretty crazy. Wish she had been in it longer.
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Old 11-19-2015, 05:44 PM   #4
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Calpers management is living in a dream world:

"So far this year, CalPERS investments have lost nearly 5%, adding to its $117-billion debt for pensions already owed to workers.

The pension fund's average return over the last decade was 5.2%."

Warren Buffett says,"Public pension plans threaten the financial health of U.S. cities and states more than taxpayers realize."
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Old 11-19-2015, 08:09 PM   #5
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IIRC, the crediting rate for the CalPERS Miscellaneous members (including local government agencies) has been 6.5 percent. I worked in the system a little over 10 years. At that time, my employer paid both shares of the contribution - theirs and the employee's.

I left my funds in the account when I quit and they grew nicely. I started drawing the pension in my early 50's, about 12 years after I left. The numbers in my case look like I got a very good deal.

I don't think the deal will be as sweet for those starting out more recently. The employee contribution at my former employer is now paid by the employee and was increased a few years ago to pay for the sweetener that was added in the go go days of the 1990's. That extra 1/2 percent at 55 will probably have to disappear at some point.

Like individuals reaching for yield, CalPERS has taken on riskier investments in recent years. Many of them have not worked out as hoped. Acknowledging that by lowering the anticipated return to 6.5 percent is a necessary but likely inadequate step.

I used to think my parents were very fortunate to get decent social security payments and Medicare when it was a good program that the medical profession liked. Even without their substantial investments, they were set for life. They did not take any money out of their small business retirement plan that was rolled into an IRA until the RMD's hit.

Now I think I'm in the sweet spot, with two government pensions based on rosy assumptions, Social Security on tap, and my investments. My only worry is the quality of health care, which I expect will degrade when I am forced onto Medicare. The succeeding generations will have to deal with the consequences of slow growth and a burgeoning population.
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Old 11-21-2015, 05:15 PM   #6
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The planned investment return is actually meaningless except in calculating the shortfall of the budget the balance sheet liabilities and charging fees to municipalities. Actual results are what counts. Their investment expectations were not too high in my mind, their execution and management style is reflective of what one would expect from a committee basis running investment decisions and leading to inferior results.

They are just overthinking it, an investment just in Vanguard Wellesly would be up 2 percent year to date and 7.2 percent over the last 10 years. Investing in Vanguard index balanced 60/40 fund would be up 2 percent YTD and 7.1 percent over 10 years.

The description of CALPERS investment strategy and funds takes up 211 pages and they are heavily invested in private equity and real estate and are far too global in their investing techniques.
https://www.calpers.ca.gov/docs/form.../cafr-2014.pdf

Don't like their investments? CALPERS allows anyone to suggest an investment and their professionals will review it, probably need to take 3 percent off expected returns just for having this feature:
https://www.calpers.ca.gov/page/inve...sal-submission
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Old 11-21-2015, 07:38 PM   #7
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Quote:
Originally Posted by Running_Man View Post
They are just overthinking it, an investment just in Vanguard Wellesly would be up 2 percent year to date and 7.2 percent over the last 10 years. Investing in Vanguard index balanced 60/40 fund would be up 2 percent YTD and 7.1 percent over 10 years.

The description of CALPERS investment strategy and funds takes up 211 pages and they are heavily invested in private equity and real estate and are far too global in their investing techniques.
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That description sure rings home for the municipal pension I now draw from. I recall in the 2004-2004 time frame, my plan paid a private equity placement agent close to 75 million as a fee on an investment that ended up loosing money. Sure can make more money selling the advise, than using it LOL.
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Old 11-22-2015, 06:50 AM   #8
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Came across this article about Calpers selling off some RE holdings to Blackstone.

http://www.wsj.com/articles/blacksto...ers-1447360316

This is referred to as part of their attempt to simplify holdings. I also saw that in 2010 Calpers fired some of their outside managers, such as Blackrock.

The RE holdings were purchased just before the great recession. Great timing.
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