California pension funds see investment returns soar

By Dale Kasler
Sacramento Bee
Monday, July 18, 2011

California’s two pension funds reported their biggest investment gains in years today as they continue to climb out of the hole caused by the market crash of 2008.

CalSTRS said it earned 23.1 percent, its highest in 25 years, in the fiscal year that ended June 30.

CalPERS did nearly as well, posting a 20.65 percent gain. That was its best in 14 years.

The robust returns are critical to the two pension funds’ attempts to recover from the devastating losses of 2008-09, when their portfolios shrank by more than 20 percent each.

CalPERS has had to impose higher contribution rates on state taxpayers. That has increased the political pressure from Republican lawmakers and others to overhaul the pension system and reduce expenses.

CalSTRS doesn’t have the authority to raise contribution rates without the Legislature’s approval; it has been talking for months about going to lawmakers for permission. The teachers’ retirement fund indicated today that it still likely needs help from the Legislature.

“Without legislative approval for increased contributions, even given this past year’s impressive performance, CalSTRS would need a more than 20-percent investment return each year for the next four years to achieve full funding in 30 years, an impractical expectation,” CalSTRS Chief Executive Jack Ehnes said in a press release.

CalSTRS is just 71 percent funded – meaning it has assets to cover 71 percent of its expected long term liabilities. Most experts say retirement funds should be 80 percent funded, or more.

For CalSTRS, the 23 percent gain follows a 12 percent return a year earlier. “Solid performance in the past two fiscal years puts some wind in our sails, but it doesn’t make up for a lost decade of returns,” said the pension fund’s chief investment officer Christopher Ailman.

At CalPERS, every major investment category made money – even the troubled real estate portfolio, which rose 10.2 percent.

CalPERS investment officials, led by chief investment officer Joseph Dear, are expected to discuss the latest investment results in detail later this morning.

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