The California Public Employees’ Retirement System, which provides benefits to about 1.7 million state and local government workers, retirees and their dependents, said its total investments were worth $282.6 billion as of Friday, the highest ever.
Better known as CalPERS, the country’s biggest public pension fund was especially helped by the stock market’s best year since 1997. Among its holdings, publicly traded shares did best; bonds and commodities did the worst.
The results for 2013 capped a wild ride for the agency over the last 11 years. The fund was especially hard hit during the Great Recession of 2007-09. In 2008, amid the depths of the worst global economic slowdown in half a century, the fund lost 27.8% of its value.
Since then, it has climbed back. In 2011, the fund’s increase in value was a mere 1.1%. For 2012, the rate of investment growth was up to 13.3%. By early 2013, the total value of the fund officially surpassed its pre-recession high.
CalPERS’ overall rate of return for 2013 was more than twice the 7.5% minimum that the fund’s board has said it needs to meet current and future obligations to retirees.
The results were cheered by experts.
“A 16.2% rate of return is really good,” said Marcia Fritz, a Sacramento pension reform activist.
CalPERS, she stressed, must invest for “the long haul” to generate enough money to meet its retirement obligations that are still decades in the future without burdening municipal budgets or saddling taxpayers with the bill.
Publicly traded company stocks, both domestic and international, were a portfolio highlight last year. Stocks were up 25.6% for the full year. Private equity investments, whose reporting lags public equity by three months, rose 19.1%.
“Equity had a powerhouse year,” Chief Investment Officer Joseph Dear told the CalPERS board meeting Monday in Monterey, Calif.
Real estate, which suffered deep losses during the recession and its aftermath, grew 11.7%, while investments in infrastructure jumped 11.2%. Bond investments lost 4%, and commodities lost 4.75%.
The calendar year earnings also beat CalPERS’ official target of 14.8%. The benchmark is tailored to reflect the minimum performance for large portfolios containing an expansive range of stocks, bonds, commodities, property and other investments.
CalPERS’ board requires that risk be minimized by broadly investing in diversified assets, spokesman Joe DeAnda said. “It just wouldn’t be a prudent strategy to just put everything in one basket,” he said.
As a result, he said, CalPERS’ prudence means that in good times for stocks, such as last year, the fund earns less than had it put all its investments into equities.
Last year, the broad-based S&P 500 rose 32.4% while the Dow Jones industrial average rose 29.7%, including reinvested dividends.
CalPERS’ brightening financial picture could ease pressures in Sacramento to trim public pensions.
In recent years, there have been growing efforts by local government and pension reform advocates to reduce fixed pension benefits and move toward 401(k)-type savings plans for public workers that are common in the private sector. A proposed ballot measure that would allow local governments to cut future benefits has been approved for supporters to seek voter signatures.
“This definitely takes some of the wind out of the sails of critics,” said Steve Maviglio, a spokesman for Californians for Retirement Security, a coalition of 1.6 million government workers and retirees. CalPERS’ new report makes it “hard to make the case that the sky is falling with returns like that.”