The 7.75 percent return rate is overly optimistic this year, according to CalPERS Chief Investment Officer Joe Dear. The lagging economy has put a damper on expectations and Dear believes overall the next few years will be tough for the pension fund. The officer commented that “This low-return environment is structurally driven, and there’s not a lot of policy to move it.” While losses and gains are spread out over 15 years, Bloomberg reports that “Even with gains in fiscal 2011, the pension fund has earned 3.41 percent annually on average in the past five years, 5.36 percent in the last 10 and 6.97 percent in the last 15. It has only beat its assumed rate of return with a 20-year average of 8.38 percent annually.” Back in the spring, the Board of Directors rejected a proposal to reduce the assumed rate of return. While the pension fund was fully funded before the recession, it is now at about 70 percent.
Global pensions reports:
“Dear said the $237.5bn pension fund has positioned its portfolio defensively with a "significant" underweight towards equities of 4% and a slight underweight in fixed income. The pension fund is overweight in private equities and absolute return. He also said uncertainty in the both Europe and the US is driven by political uncertainty. Dear said investors will remain cautious on Europe ‘while there is uncertainty about the ability of the political system to deliver on hard choices.’”
Cal Watchdog piles on the criticism of the pension fund here.