Despite huge stock market gains over the last decade, U.S. pensions are hundreds of billions of dollars short of what they expect to need to pay public worker retirement benefits.
As a result of underperformance Retirement Fund Giant Calpers Votes to Use Leverage, More Alternative Assets.
The board of the nation’s largest pension fund voted Monday to use borrowed money and alternative assets to meet its investment-return target, even after lowering that target just a few months ago.
The move by the $495 billion California Public Employees’ Retirement System reflects the dimming prospects for safe publicly traded investments by households and institutions alike and sets a tone for increased risk-taking by pension funds around the country.
Without changes, Calpers said its current asset mix would produce 20-year returns of 6.2%, short of both the 7% target the fund started 2021 with and the 6.8% target implemented over the summer.
Board members voted 7 to 4 in favor of borrowing and investing an amount equivalent to 5% of the fund’s value, or about $25 billion, as part of an effort to hit the 6.8% target, which they voted not to change. The trustees also voted to increase riskier alternative investments, raising private-equity holdings to 13% from 8% and adding a 5% allocation to private debt.
Borrowing money to increase returns allowed Calpers to justify the 6.8% target while maintaining a more-balanced asset mix, concentrating less money in public equity and putting more in certain fixed-income investments, fund staff and consultants said.
What could possibly go wrong?
h/t Nate