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CalPERS, the biggest U.S. public pension fund, plans to announce
its annual returns for the 12 months ending June 30 in mid-July.
On Monday, Eliopoulos warned CalPERS Investment Committee that
the coming three to five years will be "a challenging market
environment for us."
"It is going to test us," he said at the board meeting.
CalPERS lowered its performance expectations in each major asset
class.
The fund's primary pension consultant, Wilshire Associates,
predicted that the total fund, estimated to be worth $293.6
billion, will return 6.4 percent annually over the next decade,
reduced from a 2013 forecast of 7.1 percent.
Last fiscal year, CalPERS returned 2.4 percent on its total
portfolio, slightly underperfoming its benchmark and marking a
significant decline from previous years when the fund earned
returns of over 10 percent.
CalPERS has been working to recast investment priorities to
slash complexity and volatility. Last year, the pension fund
began projecting a negative cash flow, meaning the fund pays out
more in benefits than it collects from contributions and
investment income, a repercussion of more baby boomers retiring.
Across the country, public pension funds are tackling similar
problems as the cities, counties and states that run them
struggle to keep up with mandated contributions. Adding to the
challenges, most retirement systems are underfunded, and
investment returns have been choppy.
Wilshire's largest cuts to forecasts for CalPERS' annual returns
were in global equity, reduced to 6.7 percent from 7.75 percent,
and private equity, which it cut to 9.4 percent from 10.45
percent.
CalPERS reaffirmed its support for private equity, a
high-performing asset class but one that's faced scrutiny in
recent years for its high fees and lack of transparency.
"I think it's imperative to include this asset class," said
Board Member Dana Hollinger of private equity. "While it's not
perfect, it is part of that equation. Net of fees it is still
our best performing asset class by a significant margin."
(Reporting by Robin Respaut; Editing by Richard Chang and Alden
Bentley)
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