“It’s important to remember that CalPERS is a long-term investor and one year of performance should not be interpreted as a signal about our ability to achieve our investment goals over the long-term,” said Henry Jones, Chair of CalPERS Investment Committee.
[quote=davelj][quote=equalizer]
Calpers cut assumed annual return rate to 7.5% instead of 7.25% recommended by state chief actuary. As long as SB pension is in line with range, Judge can’t rule it legally unconscionable. Of course the rate should probably be 7% because the only people who have worse investment track record than me are pension fund managers who are peddled junk by Wall Street.
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A lot of work has been done on assumed forward rates of return given certain asset mixes, and most folks who don’t have an agenda – that is, they’re not consultants being paid by the municipality to justify a higher rate, or politicians who support a higher rate (to reduce the amount of funds necessary to plow back into the pension) – come out at 5%-6% as a reasonable assumption given current interest rates and asset valuations. Personally, I think 6.5% is aggressive but supportable; anything above that and you’re venturing into Fantasyland. I believe that SD City pension fund uses 8% and the County uses 8.25% (I could be off by 25 bps on these).
A Stanford study (which I had a few small issues with) came out late last year suggesting the use of 5.5%. SDCERA issued a response to that study (and justifying their ~8% assumption) that would have earned an F in Finance 101.
The trustees and administrators are well aware that their assumptions are too aggressive but to publicly acknowledge reality is just too painful so they’ll try to bleed the rate down over time and continue to kick the can down the road until someone comes along and says “enough.”[/quote]
