California Public Pension Fund Lost $29 Billion in Last Year

The California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension fund, reported on Wednesday that it lost 6.1% on its investments for the 12-month period that ended June 30. That marks the first annual loss for the fund in over a decade.

The fund said that its first loss since the financial crisis of 2008 was due in part to “tumultuous global markets.” It said that its market losses this year are attributable to various factors, including “geopolitical instability, domestic interest rate hikes, and inflation.”

CalPERS CEO Marcie Frost issued a statement discussing the losses saying the fund has “done a lot of work in recent years” to prepare for market difficulties. She said that despite the poor performance of the fund’s investments in the last year, it remains “focused on long-term performance and our members can be confident that their retirement is safe and secure.”

The fund’s losses were concentrated in its public market investments. It lost 13.1% on public equity investments and lost 14.5% on fixed income investments.

The fund saw positive returns of 21.3% on private equity returns and 24.1% on real estate investments.

The substantial majority of the fund’s assets were held in public market investments, at about 79%.

Negative investment returns have a very detrimental effect on pension system funding. CalPERS said in its report that the current discount rate of 6.8% in combination with last year’s investment losses of 6.1% have resulted in an estimated overall funding standing at 72%. That represents a significant underfunded status.

When a pension plan is underfunded, a system must either hope for better returns in the stock market or raise contribution rates for employers and current employees to ensure that already promised pensions will be paid to retirees. That eventually leads to a taxpayer-funded bailout.

The CalPERS board lowered its market expectations last November, triggering higher contribution requirements from certain employees. The larger required payments primarily affected public employees hired since 2013. The higher contributions do not affect public education employees.

A report by the Reason Foundation released before the CalPERS report found that a 6% loss in investments last fiscal year would lead to an increase in the fund’s unfunded but promised liabilities would shoot up from $101 billion to $159 billion.

CalPERS said in its report that its total assets are currently valued at $440 billion.