CalPERS posts mixed real assets performance

The California Public Employees’ Retirement System took a hit on its real assets portfolio in fiscal year 2015-2016 that impacted its short-term and long-term returns for the $21.7 billion program, sister publication Infrastructure Investor reported.

The pension, which managed $307.46 billion in assets as of 17 January this year, posted a one-year return of 6 percent over the period, 5.1 percent below its benchmark. It fared better over three years, coming just 0.9 percent below its target, and beat its 11 percent benchmark over five years by 0.1 percent.

The biggest miss, however, was over 10 years, where CalPERS registered a return of -0.1 percent. Its benchmark for the period was 7.8 percent.

The institution explained its disappointing short-term performance by citing circumstantial factors. “This underperformance was driven by realized losses on legacy assets in the opportunistic program,” Doug Hoffner, interim chief executive, wrote in the pension’s latest annual financial report.

Contacted by Infrastructure Investor, CalPERS cited the same factors as the chief reason behind the dip in returns.

The results mark a sharp drop on fiscal year 2014-2015, when its one-year, three-year and five-year return indicators respectively stood at 12.4 percent, 12.3 percent and 11.8 percent. Its 10-year performance was already disappointing then, though positive at 2.2 percent.

The real assets portfolio bucket includes forestland, real estate and infrastructure. CalPERS raised the threshold for its managing investment director and chief investment officer to invest in forestry without committee approval from $0.25 billion to $1 billion and $0.5 billion to $2 billion, respectively, in August.

However, a lack of geographic diversity among CalPERS’ timberland investments has hampered performance, according to a letter from its investment committee’s forestland consultant written in November.

In 2014-2015, CalPERS’s infrastructure assets were valued at about $2.2 billion. Overall, the pension has a 2 percent allocation to infrastructure and forestland.