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Real Estate Stands Out As Bright Spot Amid Volatility at Largest US Public Pension Funds

Investments for California Workers’ Retirements Post Worst Returns Since 2009

The California Public Employees’ Retirement System oversees investments that totaled $440 billion as of June 30. (CoStar)

By Mark Heschmeyer CoStar News August 4, 2022 | 4:28 P.M.

The largest U.S. public pension funds are reporting negative returns, dragged down by falling stocks and bonds for fiscal years that ended on June 30. Real estate investments, however, have made up some of the losses.

The three largest funds reported in recent days returns as investors deal with volatile global financial markets, geopolitical instability, domestic interest rate hikes, and inflation. For the two biggest funds, the financial damage was greater than even the dramatic market tumult of early 2020 when the pandemic shut down much of the country for weeks.

Tumultuous global markets played a role in the California Public Employees’ Retirement System‘s first loss since the global financial crisis of 2009, as CalPERS posted a preliminary negative 6.1% net return on investments for the 12 months ended June 30. Assets stood at $440 billion at the end of the fiscal year, the largest amount for any public pension fund.

“This is a unique moment in the financial markets, and we’ve seen a deviation from some investing fundamentals,” CalPERS Chief Investment Officer Nicole Musicco said in a statement. “For instance, our traditional diversification strategies were less effective than expected, as we saw both public equity and fixed income assets fall in tandem.”

Returns for publicly traded stocks were down 13.1%, and bonds dropped 14.5%. The two categories make up the largest share by far of investment for CalPERS, as well as the two other largest U.S. public pension funds, the California State Teachers’ Retirement System and the New York State Common Retirement Fund.

The CalPERS real estate assets were showing a 24.1% return through March, the latest figure available, and private equity returns were up 23.1% through March. Other Funds

The other California fund, CalSTRS, posted a negative 1.3% net return on investments for the 2021–22 fiscal year, ending with the total fund value at $301.6 billion as of June 30. Its 2021–22 result was also the first negative return since 2009. CalSTRS is the second-largest public pension fund in the country.

The CalSTRS returns for publicly traded stocks were down 16.6%, and bonds sank 10.3%. CalSTRS’ real estate returns were showing a 26.2% return through March, the latest figure available, and private equity returns were up 23.7% through March.

Across the country in New York, the third-largest public pension fund posted a strong gain for its fiscal year, with a big caveat. The state’s fiscal year ended March 31, before the stock markets began a tumble into bear territory.

New York Comptroller Thomas DiNapoli this week reported that NYSTRS’ investment return was 9.51% for the state fiscal year. The return on investments increased the fund’s value to $272.1 billion. Second-quarter stock and bond market results would have produced different results if the fiscal year ended in June.

“The turmoil in the markets since Russia’s invasion of Ukraine has sent shockwaves through the financial world with repercussions that are ongoing,” DiNapoli said in a statement. “With inflation and supply chain issues continuing to impact the economy, we expect a challenging investment environment for the foreseeable future.”

Comparing returns through March, NYSTRS posted similarly strong real estate numbers as CalPERS and CalSTRS. The segment had a 27.4% return, while private equity returns were up 37.4%.

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