California pension funds lose nearly $100B

From The Deal.com:

California's ugly fiscal problems are apparently only getting uglier as the state's two largest pension funds revealed Tuesday shockingly large write-downs in the values of their portfolios. The California Public Employees' Retirement System, known as CalPERs, and California State Teachers' Retirement System, or CalSTRS, the two largest pension plans in the country, reported losses of $56.2 billion and $43.4 billion, respectively, for the fiscal year that ended June 30.

The two pension funds have large portfolios of alternative assets such as private equity, venture capital and real estate, all of which had big markdowns in value in 2008 and 2009.

CalPERs said its assets declined 23.4% in value for the fiscal year year ended June 30, according to the fund's preliminary performance report. The pension fund racked up preliminary losses of $56.2 billion. As of June 30, total assets stood at $180.9 billion, compared with $237.1 billion the previous fiscal year. Private equity investments dropped 31.4% in value, while real estate posted a steeper 35.8% loss, reflecting mark-to-market valuations through March 31.

It was only two years ago that CalPERS had a record-high balance of $247.7 billion, following five years of double-digit returns.

Meanwhile CalSTRS fared little better, losing $43.4 billion in its fiscal year. The teachers' fund, which provides retirement benefits for 833,000 public school educators, has assets worth $118.8 billion on June 30, down 25% from $162.2 billion a year earlier.

The fund was crushed by a 43% hit to its real estate holdings, a 28.2% decline in the value of its stock holdings and a 27.6% loss in private equity valuations.

With its state budget still in shambles, California Gov. Arnold Schwarzenegger is using the losses in a push to overhaul the state's pension system. Schwarzenegger told reporters last week that the big pension funds could face an estimated $300 billion shortfall in covering the cost of pensions to current and future retirees, according to the Los Angeles Times.

The losses are also likely to have a negative effect on the fundraising efforts of private equity and venture capital firms who have long relied on the two funds to be anchor investors in their limited partnerships. With the value of the holdings in each asset class swiftly declining CalPERS and CalSTRS may be under pressure to further adjust their allocations to both. - George White