Calpers, lost nearly $60 billion in the financial markets last year. Though it has more than enough money to make its payments to retirees for many years, it has a serious long-term shortfall.
Those problems now rest largely on the slim shoulders of Joseph A. Dear, the fund’s new head of investments. He is not an investment seer by training, but he thinks he has the cure for what ails Calpers, or the California Public Employees’ Retirement System, the largest in the nation with $180 billion in assets.
Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.
That’s right, he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge. Calpers’s real estate portfolio has tumbled 35 percent, and its private equity holdings are down 31 percent. What is more, under Mr. Dear’s predecessor, Calpers had to sell stocks in a falling market last year to fulfill calls for cash from its private equity and real estate partnerships. That led to bigger losses in its stock portfolio.
Gov. Arnold Schwarzenegger, who is on the Calpers board, has called the fund “unsustainable.” He has specifically criticized a decision by Calpers last month to give California municipalities a break on their required contributions. Rather than stepping up contribution rates to 5 percent to cover investment losses, Calpers set a maximum increase of 1.1 percent — saving municipalities hundreds of millions of dollars.
Mr. Schwarzenegger called it a “pass the buck to our kids idea.” Calpers says municipalities, which pay 15 percent of their payroll — or about $11 billion a year — into the fund, needed the help.
In the end, Mr. Dear, who will get $408,000 to $612,000 in salary and can qualify for a
Calpers Rolls the Dice, Gambling that Riskier Bets will Restore its Health
by ilene - July 26th, 2009 7:42 pm
Calpers Rolls the Dice, Gambling that Riskier Bets will Restore its Health
Courtesy of Mish
Calpers, the California Public Employees’ Retirement System, is in deep trouble. Calpers got in trouble by not understanding risk. It still does not understand risk and thinks risk is the solution.
Please consider the New York Times article California Pension Fund Hopes Riskier Bets Will Restore Its Health.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site