CalPERS, CalSTRS remain sound amid Wall Street woes

California’s public-employee and teacher pension funds say they are weathering the turmoil of Wall Street, in part because of the diversity and depth of their investment portfolios. Both funds – the $218 billion California Public Employees’ Retirement System and the $150 billion State Teachers Retirement System – offered the reassurance to their members in messages posted on their web sites.
Despite the positive outlook, however, the last few weeks have been tense. For example, on Monday alone, the 777-point plunge in the stock market amounted to a $7.8 billion loss for CalPERS, losses that were at least partly recouped the following day when the market rebounded.

But those losses don’t benefits, experts say.

“It’s alarming to our members, but the current credit crisis doesn’t directly affect the retirement benefits or our ability to pay benefits. We’ve been through these things before, and we’re designed to withstand them,” said CalPERS spokesman Clark McKinley.Both pension funds said their diversified assets, long-term investment strategies professional money managers have protected investments. CalSTRS said it has achieved an average return of 9.72 percent over the past three years, exceeding the 8 percent benchmark for long-term investments.

A 2007 report by the Pew Charitable Trust described as healthy a long-term funding status of 80 percent. CalSTRS’ status is 88 percent, the fund noted.

CalPERS said its situation was comparable to that of CalSTRS.

“The CalPERS pension system remains sound amid the current market downturn. Our members’ defined retirement benefits are guaranteed by law and remain secure, unthreatened by market swings. We have a 90 percent funding level that’s considered excellent for pension funds. We will withstand current market fluctuations with our highly diversified portfolio, and by keeping focused on long-term investments.”

“While CalPERS owns less than 0.5 percent of any publicly listed company, losses to Lehman Brothers, AIG and other companies have affected our market value….Since we don’t have all our eggs in one basket, we can soften stock market losses by investments in other asset classes. Our asset allocation targets are public stocks, 56 percent,  bonds and other fixed income, 19 percent; private equity, 10 percent;  real estate, 10 percent; and inflation-linked (commodities, infrastructure, forestland, inflation-linked bonds), 5 percent.

CalPERS said it was “handling this financial crisis as we have done with others in the past, including the savings and loan problems of a few decades ago, the big real estate slump of the early 1990s (when we bought cheap properties for big cash-outs later)…(and) this decade’s recession, when we lost $50 billion on paper, then rebounded with a $120 billion gain over the next four years.”