By Dean Starkman
Monday, July 13, 2015

The California Public Employees’ Retirement System said it missed its return target by a wide margin, hurt by a sluggish global economy and an under-performing private equity portfolio.

The nation’s largest public pension fund said its investments returned just 2.4% for its fiscal year, ended June 30, far below its 7.5% investment target.

In a conference call with reporters Monday, CalPERS’ chief investment officer, Ted Eliopoulos, said the main culprit was a sluggish world economy that held down returns on its giant stock portfolio, which makes up 54% of the $301-billion fund.

The stock portfolio’s return was only 1%, underperforming the 1.3% returns at its benchmark portfolio. Eliopoulos noted that the fund has done better than the 7.5% target over the previous three- and five-year periods.

“We try not to focus or get too excited about any one year’s given return,” he said. “We look more meaningfully at longer time horizons.”

A surprising disappointment was its private equity portfolio, which accounts for about 9% of the fund. That portfolio’s return was 8.9%, which was a significant miss at 2.21 percentage points below CalPERS’ benchmark. The segment has come under scrutiny for its complexity and lack of transparency in disclosing performance fees.

Eliopoulos said CalPERS would provide a more detailed accounting of the portfolio’s segments and managers in August. He said that, historically, CalPERS’ private equity portfolio has outperformed both the public stock market and the fund’s private equity benchmarks.

In June, CalPERS said it would halve the number of investment managers in its private equity and other portfolios, now at more than 200 managers, over the next five years. This month the fund said it would report private equity performance fees beginning in the fall.

Analysts mostly agreed that a single year’s results shouldn’t be given too much weight.

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