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April 20, 2020

Comments

Lorne

Well, this is certainly interesting:

https://www.bloomberg.com/news/articles/2020-06-15/calpers-cio-eyes-more-private-equity-leverage-to-boost-returns

Joe

Yes, Ben Meng had an opinion piece in the WSJ on the 14th. Here is a bit of it:

Over the past year, we have reviewed our investment approaches. We improved our liquidity position and redeployed $64 billion to reduce active risks in public markets. These decisions, along with asset allocation changes over the past couple of years, helped Calpers reduce by about $11 billion the impacts of the market downturn caused by Covid-19. We also scaled back our use of external asset managers, saving $115 million in fees annually.

Yet even before the pandemic, we knew that our goal of achieving a risk-adjusted return of 7% would require addressing the market’s triple threat of low interest rates, high asset valuation and low economic growth. In late 2019 we mapped out an investment strategy to deliver sustainable results.

The solution is based on “better assets” and “more assets” and will capitalize on Calpers’s advantages: a long-term investment horizon and access to private asset classes.

Calpers must diversify and increase exposure to private assets, such as private equity and private credit. We refer to these as “better assets” because they have the potential for higher returns and lower expected volatility when compared with publicly traded assets.
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The Rolling Stones' Tumbling Dice is playing in my head. Thanks for the reminder to note this.

Joe

Here's the latest on public pension returns, funding and Mr. Meng:

Public pension funds set a 22-year performance record in the second quarter, recovering some but not all of their losses from the first quarter.

Double-digit stock gains pushed pension returns to a median 11.1% for the second quarter, according to Wilshire Trust Universe Comparison Service.

Even with the rebound, median annual returns for the public pensions whose fiscal years ended June 30 were 3.2%, far short of the funds’ long-term investment-return target of around 7%.

The California Public Employees’ Retirement System, the nation’s largest pension fund, returned 4.7% for its fiscal year ended June 30 while the California State Teachers’ Retirement System returned 3.9%.

With local governments hemorrhaging tax dollars as a result of the pandemic, pension managers have to worry about governments adjusting budgets midyear, said Keith Brainard, research director of the National Association of State Retirement Administrators.
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California Public Employees’ Retirement System Investment Chief Ben Meng has resigned after about a year and a half in the position at the nation’s largest pension fund, according to the fund.


The resignation was effective Wednesday (Aug 5). Dan Bienvenue, deputy chief investment officer, will serve as interim chief investment officer.

A prominent board member expressed disappointment Thursday morning over what she said was Mr. Meng’s failure to adhere to conflict-of-interest rules.

Calpers has on hand only about 71% of the assets needed to meet future pension promises for more than two million workers and retirees.

Calpers delivered a 4.7% return for the year ended June 30, Mr. Meng’s first full fiscal year at the helm. The median return for public pension funds was 3.2% after huge losses in the first quarter during the early days of the Covid-19 pandemic. The California fund has earned an annualized return of 8.5% over the past decade and 5.5% over the past 20 years.
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7.0-5.5= Ugh Oh.

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