CALPERS plans riskier bets to recoup losses on previous risky bets

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CALPERS plans riskier bets to recoup losses on previous risky bets

Saturday, July 25th, 2009 | Economics |

New York Times - California Pension Fund Hopes Riskier Bets Will Restore Its Health:

Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.

That’s right, he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge. Calpers’s real estate portfolio has tumbled 35 percent, and its private equity holdings are down 31 percent. What is more, under Mr. Dear’s predecessor, Calpers had to sell stocks in a falling market last year to fulfill calls for cash from its private equity and real estate partnerships. That led to bigger losses in its stock portfolio.

And there’s this:

Mr. Dear remains a believer. Private investments, he asserts, will over the long haul outperform stocks by three percentage points a year, and that is necessary to keep Calpers on track to returning its goal of 7.75 percent annual returns.

See Calling BS on high rates of expected return for why a 7.75% annual return - year in and year out - is unrealistic. These municipal pension fund managers and their political bosses have to pretend those returns are possible. Ootherwise they’d have to admit the pensions are woefully underfunded. California is broke and is planning cuts in basic services. They’d have to cut even more if they fully funded their massive pension funds.

Tags: california, pensions, unions, we're from the government