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CalPERS flexes fee reduction muscles, saves $300m with external manager fee reductions

Tuesday, November 09, 2010
Opalesque Industry Update - The California Public Employees’ Retirement System (CalPERS) today reported a final net return on its investments of 13.3 percent for the one-year period that ended June 30, 2010, beating the pension fund’s preliminary return estimate by almost two percentage points.

Audited performance through the end of the 2009-10 fiscal year for all asset classes brought the Fund’s total market value to $200.5 billion, or $500 million higher than reported last July. At that time, returns for real estate, private equity, infrastructure and forestland were available only for the 12 months ending March 31, 2010.

“This updated report indicates a gain of more than $40 billion since our turn-around from the lowest point of the recession in March 2009,” said Chief Investment Officer Joe Dear. “We also beat our benchmark of 12.95 percent and eclipsed return targets for every asset class except real estate. But even that asset class improved dramatically over what we reported in July.”

The upturn for the 2009-10 fiscal year exceeded the long-term annualized earnings target of 7.75 percent and brought the 20-year return average through June 30, 2010 to 7.65 percent.

The CalPERS Board, investment staff and outside consultants are developing a new plan beginning in 2011 for how to allocate capital in public stocks, private companies, bonds and other fixed income, real estate and inflation-linked assets like commodities, infrastructure and forestland.

CalPERS has also saved almost $300 million in fee reductions with external managers, has eliminated low-performing funds from its portfolios and is developing new risk management tools. It also successfully advocated several federal financial market regulatory reforms aimed at protecting investors, consumers and the economy from future financial crises.

Today’s announcement includes market value of asset changes for the year that ended June 30, 2010 as follows: global fixed income, up 20.35 percent; private equity, up 23.88 percent; public stocks, up 14.42 percent; commodities, infrastructure, forestland and inflation-linked bonds, up a combined 8.70 percent; and real estate, down by 10.76 percent compared with an estimated decline of 37.1 percent reported in July.

“These figures confirm our initial assessment a few months ago that we were in a recovery mode with the opportunity to capture future returns because of our long-term investment horizon,” Dear said. “These financial figures are good news for employers since investment gains will help mitigate increases in their contribution rates.”

(press release)

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