Thursday, July 16, 2015

Big Money: "Calpers Chief Sees Interest Rates as Greatest Portfolio Stress"

Following up on July 1st's "Largest U.S. Public Employee Pension Fund, CalPERS. To Fall Short Of Assumed Returns Once Again".
From Bloomberg:
The $300 billion fund says it earned 2.4 percent in the last fiscal year, below its 7.5 percent target rate.
The chief investment officer of the biggest U.S. pension fund is most worried about low interest rates as the California Public Employees’ Retirement System struggles to earn enough money to pay beneficiaries.
“It provides the greatest stress on our portfolio as a whole as we try to achieve a 7.5 percent rate of return,” Ted Eliopoulos said in an interview Tuesday at the fund’s governing board meeting in Walnut Creek, California.

The $300 billion fund said Monday that it earned 2.4 percent in the last fiscal year, below its 7.5 percent target rate. When it falls short, it must turn to taxpayers to make up the difference. Stock and bond market volatility caused by uncertainty over when the Federal Reserve will increase rates depressed returns.
Near-zero interest rates for more than five years have led investors into riskier assets as they search for returns, the demand pushing prices higher and narrowing the compensation they get for that added risk.
Investors from BlackRock Inc.’s Laurence D. Fink and Janus Capital Group Inc.’s Bill Gross have highlighted the rate environment’s effects on pension funds and insurance companies, which rely on returns from their investments to help pay claims.

“The current low interest rate environment poses a significant risk for the long-term financial viability of pension funds and insurance companies, as they seek to generate sufficient returns to meet promises,” the Organization for Economic Co-operation and Development said in a June report....MORE
From the behemoth's website, a breakdown of return sources and performance vs benchmark, July 13:

Today's announcement includes asset class performance gains as follows:
Public Equity 1.0% (31) bps
Private Equity 8.9% (221) bps
Fixed Income 1.3% 93 bps
Real Assets 12.4% 90 bps
Real Estate
13.5% 114 bps
13.2% 932 bps
(0.3)% (1,094) bps
Liquidity 0.9% (77) bps
Inflation Assets (11.5)% 147 bps
Total Fund 2.4% (9) bps