After Year of Big Changes, CalPERS Reports Returns

With a new CIO coming in, the fund beat its discount rate.

Illustration by II

Illustration by II

After a year of major changes, the California Public Employees’ Retirement System has posted a 9.3 percent net return.

The $502.9 billion fund announced returns for the fiscal year ending June 30, 2024, on Monday. The preliminary annual performance is higher than CalPERS’s discount rate — and achieved amid a year of change at the fund.

In September 2023, the fund’s CIO, Nicole Musicco, who had been in the seat for less than two years, stepped down. The fund has since hired Stephen Gilmore, former CIO of the New Zealand Superannuation Fund, who started the job last week.

Gilmore spoke to the press for the first time in his new seat on Monday. He said during a press conference that he plans to focus on CalPERS’s strengths, including the quality of its team and the relationships the fund has already built. He also signaled that CalPERS will spend more time looking at how assets and liabilities align.

The pension fund also doubled down on its commitment to the private markets this year. In March, CalPERS announced it would increase its private markets allocation from 33 percent to 40 percent of the portfolio to bolster overall fund returns.

“Our team remains focused on executing on our long-term investment strategy, building a diversified portfolio to navigate markets and mitigate volatility over our multi-generational investment horizon,” said interim chief investment officer Dan Bienvenue in a statement.

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Although CalPERS achieved returns above its discount rate this fiscal year, it underperformed that benchmark in 2023 and posted negative returns in fiscal year 2022. These have affected the fund’s long-term performance. CalPERS’s preliminary annual five-year return was 6.6 percent, its 10-year return was 6.2 percent, and its 20-year return was 6.7 percent. Each of these lags CalPERS’s discount rate (comparable to the assumed rate of return, or the board’s policy benchmark) of 6.8 percent.

This time of year, pensions and endowments emphasize the importance of long-termism: The 10-year return matters more than the one-year, they say. But every year, a veritable performance horse race among LPs emerges, fueled by the media and allocators alike.

CalPERS is typically one of the first to report annual returns for the fiscal year ending June 30. These are preliminary returns and will be revised in the coming months as the staff and outside experts review the data. The report will kick off a plethora of others in the coming two months, as annual reports from pension funds and university endowments begin to be released.

Digging into the fund’s asset class level returns reveals that public equity was the fund’s best-performing asset class, achieving a 17.5 percent annual net return. CalPERS has 41.9 percent of its portfolio allocated to public equities. The asset class was also CalPERS’s top performer in 2023, bringing in 14.1 percent. The pension fund plans to reduce this allocation as a part of its repositioning into private markets, targeting an allocation of 37 percent.

CalPERS’s private market returns lag public ones, as private equity firms value their assets three months after the quarter closes. As of March 31, 2024, private debt posted CalPERS’s second-highest asset class returns at 17 percent. The fund established its private credit allocation in 2022, and, as of March, had allocated 5 percent of its portfolio to private debt. It plans to add three percentage points to the allocation, targeting 8 percent in total.

Private equity returned 10.9 percent for the portfolio in 2024, up from a 2.3 percent loss in 2023. CalPERS also plans to increase its private equity allocation by four percentage points in the coming years, from 13 to 17 percent.

Real assets was the only asset class that posted losses in 2024, dropping 7.1 percent year over year. This follows a loss in 2023 of 3.1 percent. CalPERS plans to keep the allocation to real assets stable at 15 percent.

“That has been a challenged part of the portfolio and has been challenged across the industry,” Bienvenue said during the press conference. “We are seeing some stabilizing starting to happen.”

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