STUMP » Articles » Investment Results Season for Public Pensions: Below Targets » 2 August 2016, 06:05

Where Stu & MP spout off about everything.

Investment Results Season for Public Pensions: Below Targets  


2 August 2016, 06:05

Way below targets.

Results for Calpers:

The California Public Employees’ Retirement System (CalPERS) today reported a preliminary 0.61 percent net return on investments for the 12-month period that ended June 30, 2016. CalPERS assets at the end of the fiscal year stood at more than $295 billion and today stands at $302 billion.

CalPERS achieved the positive net return despite volatile financial markets and challenging global economic conditions. Key to the return was the diversification of the Fund’s portfolio, especially CalPERS’ fixed income and infrastructure investments.

It’s greater than zero… so… good?

Leo Kolivakis on Calpers results: CalPERS Smears Lipstick on a Pig?

For some unintentional comedy: this coverage of the Calstrs takes the cake.

Let’s start with the headline and subhed, shall we?

California teacher pension fund got boost last year
CalSTRS pension system serves 900,000 teachers

Ooooh, a boost! How big was it?

SACRAMENTO, Calif. (KCRA) —California’s teacher pension system says its investments earned 1.4 percent in the last fiscal year.

…..yeah, I wouldn’t call that a boost.

The figure released Tuesday falls short of the 7.5 percent target for the California State Teachers’ Retirement System.

But CalSTRS officials say they’re still on track to pay down the system’s unfunded liability by 2046, as required under a plan adopted by the Legislature two years ago.

Oh, I’m sure their plans now for 30 years later is so pertinent.

Reminder as to how Calstrs results look like:

Results for San Diego:

Poor returns hasten pension reckoning
San Diego County investments miss targets for second year

The county’s pension fund just finished its worse investment year since the financial crisis of 2008 — yet the news is better than you might think.

The San Diego County Employees Retirement Association reported a preliminary return Thursday of 0.5 percent for its $10.2 billion investment fund in the fiscal year that ended June 30, dragging its 10-year average to 4.7 percent a year.

It was a hair worse than the 0.6 percent return in fiscal 2016 reported Monday by the giant California Public Employees Retirement System. And I fully expect similarly lackluster results from San Diego’s city fund, which doesn’t release results until mid-August.

In each case, investment returns fell far short of their targets, which assume average earnings of 7 percent a year or more.


New York City results:

New York City’s five pensions are seeing the weakest investment gains in four years, threatening to leave taxpayers chipping in an additional $732 million through 2020 to make up for lost ground, according to a report from Comptroller Scott Stringer.

The city’s $163 billion pensions for police officers, fire fighters, teachers, civil employees and school administrators gained 1.46 percent for the 12 months ended June 30, the comptroller estimated, after accounting for fees. It would be the smallest return since 2012 and far short of the funds’ 7 percent target.

Maybe y’all should hold off on your divestment projects, eh?

Results for Japan:

Japan pension fund incurs 1st investment loss in 5 years

Japan’s public pension fund has logged a loss of 5.31 trillion yen ($51.2 billion) for fiscal 2015 ended in March, the first red ink in five years, hit by falling stock prices.

The 134 trillion yen Government Pension Investment Fund, the world’s largest of its kind, had shifted its investment strategy in 2014, increasing the ratio of domestic and foreign shares while reducing bonds in the portfolio as part of economic policy reforms by Prime Minister Shinzo Abe.

The loss was the largest since fiscal 2008 when the fund was affected by the global financial crisis following the collapse of U.S. investment bank Lehman Brothers.

The investment result for a single year will not immediately lead to reducing pension payments, according to the fund.

The return on investment during the reporting year was minus 3.81 percent, the GPIF said. The average return for the period since fiscal 2006, when the fund was established, stood at 2.68 percent.


These are just some of the big names releasing results. We saw in the Ohio post, that they were also well below their targeted asset return.


One year ago, investment results were also coming in. The following comments were ones I made about Calpers, but the overall point is the same for all funds:

Okay, there are all sorts of numbers being thrown around in the most recent announcement, and the basis for comparison keeps changing.

What was the importance of return since 1988? I think they’re measuring from a prior low point.

The 3-year and 5-year benchmarks are more about the performance of the investment managers, given the constraints of asset allocation they work under. Yay for them. But it has nothing to do with whether the asset performance is in line with what is needed long-term.

Looking at the specific breakout, though, I am concerned. Some of the double-digit returns are on asset classes that can be hard to value. They look great, until all of a sudden you find out the actual market value, when you actually had to sell to get cash, was very different from what is being said.
I’m not linking to the other press releases I have found over history, but there is a theme of shifting the basis for comparison. And that comparison shifting doesn’t really bode well for saying one is really thinking long-term.

Especially if one picks a prior low point to compare against. (Since 1988, Calpers? Really?)

To put in a little praise, it does seem that Calstrs puts up the same time horizon comparisons each year. They give the 3-, 5-, 10-, and 20-year returns, as well as show what their benchmark indices were. I even dipped into the archive and found out they’ve been doing this since 2011. Way to go!

I will note I could find no press release on investment performance for Calstrs in 2009. I wonder why.

Here is my point: if you keep changing what numbers we’re looking at, I wonder just how long-term the management of the fund is.

And why I should trust the choice of discount rate.

This is still the case.


At the time, I looked at the S&P 500 return over July 1 to July 1 from each year (as the investment results are being reported over the same period).

Let’s look at the SPX again:

The graph comes from doing a filter on the Morningstar page.

But you can see the starting point is about exactly the same as the end point.

July 2, 2015 SPX: 2076.78
July 1, 2016 SPX: 2102.95

That’s a 1.26% increase over one year.

Quite a bit less than 7.5%, or 8%, or pretty much all pension plan expected return on assets.


The thing is, of course, is that these are only single-year results being written about. One year of underperformance is not concerning.

What we really care about, of course, is the long-term performance.

Well, that’s been way down as well.

From the Wall Street Journal:

Why Pensions’ Last Defense Is Eroding
Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded

Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded, portending deeper pain for states and cities as a $1 trillion funding gap widens.

Twenty-year annualized returns for public pensions in the U.S. are poised to decline to 7.47% once fiscal 2016 results are released in coming weeks, according to an estimate from Wilshire Trust Universe Comparison Service, which tracks pension investment returns.

That would be the lowest-ever annual mark recorded by Wilshire, which began tracking the statistic 16 years ago. In 2001, near the height of the dot-com boom, pensions’ 20-year median return was 12.3%, according to Wilshire.

The dip is intensifying a national debate over whether states and cities can continue to afford pension obligations, as the soaring costs are squeezing budgets across the U.S.

“Many states and local governments may be facing difficult choices if investment returns remain low,” said Keith Brainard, research director at the National Association of State Retirement Administrators. “The money has to come from somewhere.”

And the smoking gun:

I will be looking at a few things about the troubling aspects of low returns later.

Last year, I noticed the change in emphasis in measuring the long-term return for Calpers, where they started measuring from a historical low point in the market. I didn’t see any comment on long-term results in this year’s press release.

Many funds could point to shorter-term results, like when Ohio said that the fund exceeded target (though once barely) by a certain number of times in the last ten years, conveniently ignoring that one of the down years, 2009, more or less obliterates those excesses and pulls the average return to well below target.

In future posts, I will play around a bit with the Public Plans Database, and see how widespread the issue is. As well, we need to think through how returns ought to be measured and averaged.

Just keep in mind: the short-term results were not good this year, and the long-term results have not been much better. Public pensions generally don’t perform all that much better than the markets as a whole, and they are showing the same problem.

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