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Calpers Beats Pre-Recession High, But Still in Danger


After seeing its wealth decimated by the crash in 2008, California’s public pension system has just surpassed its pre-recession high and is now valued at $260.8 billion. Bloomberg reports:

Calpers’s value was already in decline when Lehman Brothers Holdings Inc. went bankrupt in September 2008, leading to a panic that wiped out more than $6 trillion in U.S. stock-market value in about six months. By 2009, Calpers’s value had plummeted to $164.7 billion. […]

Since then, the pension fund has benefited from the stock market’s recovery after the S&P 500 Index (SPX) touched a 12-year low in March 2009. The benchmark gauge of U.S. equities climbed more than 13 percent last year and has more than doubled since its low.

Surely, then, Calpers must be out of the woods? Not quite. As Bloomberg notes, Calpers still has $87 billion in unfunded liabilities—more than three times the $27 billion shortfall of mid-2007. The fund may have recovered after its five down years, but it has been racking up new liabilities in the meantime; it is only 74 percent funded today, as opposed to 90 percent in 2007.

There are also reasons to believe that this asset price rebound may not keep up at anything resembling its current pace. Calpers lowered its projected rate of return from 7.75 to 7.5 last year, but many think that even this lowered projection is unreasonably high.

Calpers’s projections look more like something we would expect to see if America were growing at the rate of China, where GDP grew by 7.8 percent in 2012. But there are reasons to think that even China won’t be able to keep up these numbers over the long term.

Calpers is going to have to make up its shortfalls somewhere. The odds are against its finding them from spectacular investment returns.

[California seal image courtesy of Aaron Kohr / Shutterstock]

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  • TemplarGuy

    You don’t need China-like growth to achieve a 7.5% return. That’s really well below historical equity market returns. They just need to stay away from most fixed-income.

  • bigfire

    On one hand, Calper acted like the mobs from “Good Fellas” in their demand for money from the cities, bankruptcy or not. On the other hand, their ‘green’ initiative and other good ideas is costing them actual return on investment that they’ll need if they’re at all serious about fulfilling their obligation.

    It’s run like a typical leftist entity that it is.

  • Merina Smith

    They’ll no doubt try to get it from California taxpayers who don’t have pensions. That would be me.

  • Phineas Fahrquar

    Calpers has been mismanaging its investments and been way too optimistic regarding returns since the 90s boom. I see little hope of them becoming suddenly sensible.

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