Monday, July 23, 2012

"CalPERS fails to make money in commodities: John Kemp"

This is really quite amazing. CalPERS was one of the first to get onboard the "commodities as asset class craze" and was (is?) a major long-only patsy client for various Goldman products including a fancy little swap that, taking advantage of Goldman's classification as a 'commercial' allowed CalPERS to evade position limits.

We have many, many posts on CalPERS, Commodities and Goldman Sachs dating from the 2008 price spike and the subsequent collapse.
Here's the latest from Reuters' John Kemp:
Nearly five years after it began investing in commodities, the biggest public pension fund in the United States has yet to make any money in the asset class -- highlighting the difficulty even the largest and most sophisticated institutions encounter in wringing returns from investments in agriculture, metals and energy derivatives.

The California Public Employees' Retirement System (CalPERS) had assets valued at $236 billion at the end of March 2012, including $3.6 billion linked to commodity prices, according to the latest quarterly performance report presented to CalPERS investment committee in May.

The system began investing in commodities in October 2007. CalPERS' performance matters because it has been one of the highest-profile institutions to allocate significant funds to the asset class, helping make it more acceptable among traditionally conservative pension funds.

A review of the programme by pension consultants Wilshire Associates in May 2011 noted that the leading investment banks dealing with CalPERS, which included JPMorgan, Societe General, Barclays and UBS, "realise the benefit of having a visible plan sponsor like CalPERS being an active proponent of commodity investment."

But a careful analysis of the programme's performance suggests it has actually lost money. Between October 2007 and June 2011, the programme had a negative rate of return of 6.9 percent per year. Between July 2011 and April 2012, the fund achieved a positive return of just 0.1 percent, according to performance reports published on CalPERS' website.

Detailed data for performance in May and June 2012 is not yet available. By design, however, performance closely tracks the S&P Goldman Sachs Commodity Index Total Return Index , which declined 12 percent over those two months, so it is almost inevitable the programme was down sharply by the end of the second quarter -- ensuring it has been loss-making since inception....MUCH MORE
The GSCI is heavily weighted toward the oil complex, maybe not the place to be in a declining market.
Watch out for those fast-talking product pushers.