California State Pension Fund: Worst Return Since 2009 -- July 18, 2016

I was going to add this to an earlier post, but the story is so incredible, my boss told me to post it as a stand-alone.

When you go through this article, take some time to think about all the story lines, all the ramifications. The first question I would like answered is: what was the state's investment strategy? Did the state take "moral investing" too far (like no investing in fossil fuel energy; no investing in cigarette companies; no investing in Big Pharma, no investing in US companies)?

I don't know anyone who can get a return of less than 1% in this investing environment. And when they say "less than 1%" it doesn't really convey how bad it really was: the return was just 0.61%. I guess I could understand 0.64% or 0.63% or even 0.62% but down to just 0.61%. Wow, that's worse than how badly the global warming folks are missing on their own projections.

The Los Angeles Time is reporting:

California’s largest public pension fund made a return of less than 1% in its most recent fiscal year, the fund’s worst performance since 2009.

The California Public Employees’ Retirement System said Monday that its rate of return for the year ended June 30 (2016) was just 0.61%. What’s more, Ted Eliopoulos, the pension fund’s chief investment officer, said the poor year has pushed CalPERS’ long-term returns below expected levels.

But now the good news. There really is no reason for CalPERS managers to worry about return. Constitutionally -- and upheld by the courts -- any shortfall must be made up by the taxpayers.

CalPERS assumes that, in the long-term, it will earn investment returns averaging 7.5% a year. If the fund fails to meet that goal, the state’s taxpayers could be forced to make up any shortfall in pension funding.

Now, after two consecutive years of lackluster returns, CalPERS’ long-term averages have fallen below that crucial benchmark. Over the past 20 years, average investment returns now stand at 7.03%. Returns over the last 10 and 15 years now average less than 6%.

This reminds me of the financial ads on local radio in which the pitchmen tell us they will guarantee a 9% return. I guess CalPERS sort of guarantees their stakeholders a minimum return, because if they don't get it through investments and/or good management, they will get it from the taxpayers.

So, what else in the article?

Over the past few years, many public pension funds have lowered their expected annual returns, according to pension consulting firm Milliman, and CalPERS could do likewise. That would increase pension costs for state and local government agencies that have employees covered by the pension giant.

Such a change is likely more than a year away, though. CalPERS next year will reassess its investment strategies, a process that, starting in 2018, could lead the pension fund to change how it manages its money and to lower its return expectations.

And then this:

In a statement Monday, Eliopoulos said he was proud of eking out a positive return in a year of market volatility.

Eliopoulos is, no doubt, on Hillary's short list to be her Czar of Economic Development.

By the way, "elios" (Greek) translates to "pity." "Poulis" is, of course, probably from which "polis" -- city-state -- is derived. A pitiful city-state?

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So, Let Me Get This Straight -- IOC Might Punish Russia By Not Letting Its Athletes Go Where Security Is Absent; Zika Is Real; And The Subway System Isn't Even Working

Half our US golfers and half our NBA wish the IOC would threaten the US with the same punishment: forbidding them to attend the Olympics.  For the Russians, I'm looking for the downside.

We're less than a few weeks from the Opening Spectacle, and the IOC still hasn't decided whether to let Russia attend. No link. Article everywhere.