This is not new. Thirteen months ago we posted "Come on Lucky Seven: CalPERS Bets on Alternative Investments" and "Pension Funds Drive Growth Of Alternative Assets. And: CalPERS Up 68% on Commodities; Down 31% on Real Estate. Action, Baby, Action!".
Here's today's story from the New York Times:
Big as California’s budget woes are today, so are the problems lurking in its biggest pension fund.See also this June's "CalPERS may up PE, VC investing"
The fund, known as Calpers, lost nearly $60 billion in the financial markets last year. Though it has more than enough money to make its payments to retirees for many years, it has a serious long-term shortfall. Meanwhile, local governments in the state are pleading poverty and saying they cannot make the contributions that would be needed to shore it up.
Those problems now rest largely on the slim shoulders of Joseph A. Dear, the fund’s new head of investments. He is not an investment seer by training, but he thinks he has the cure for what ails Calpers, or the California Public Employees’ Retirement System, the largest in the nation with $180 billion in assets.
Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.
That’s right, he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge. Calpers’s real estate portfolio has tumbled 35 percent, and its private equity holdings are down 31 percent. What is more, under Mr. Dear’s predecessor, Calpers had to sell stocks in a falling market last year to fulfill calls for cash from its private equity and real estate partnerships. That led to bigger losses in its stock portfolio.
Mr. Dear remains a believer. Private investments, he asserts, will over the long haul outperform stocks by three percentage points a year, and that is necessary to keep Calpers on track to returning its goal of 7.75 percent annual returns.
“Three percent on a portfolio as large as ours makes a material difference,” he said.If he can inch Calpers’s investment performance up, many problems will disappear. If not, Calpers may end up in an even bigger financial squeeze than it is today.....MORE
Also, for some reason I am reminded of a somewhat snarky post from last October, "Calpers Sells Stock Amid Rout to Raise Cash for Obligations":
This is hedge fund behavior, selling your most liquid investments to prop up the illiquid....
...At the same time PrivateEquityRealEstate is reporting the pension behemoth has found a fund with really good projections:
CalPERS invests $400m in Sternlicht’s latest fund
The California pension has committed $400 million to Starwood’s $3bn Global Hospitality Fund II, which is targeting 20% IRRs. This summer, Sternlicht said he was rapidly expanding his latest hotel brand: the Baccarat, based on the famous crystals....