On October 13, 2021, the California Public Employees' Retirement System (CalPERS) hosted a webinar to update approximately 300 stakeholders on its Asset Liability Management efforts and decisions in advance of the CalPERS November 2021 Board meeting. Highlights included:
- 21.3 percent net return on investments through June 30, 2021.
- Discussion of projected long term returns on investment (currently anticipated to be 6.2% over 20 years).
- Discussion of portfolio risks and efforts to minimize losses.
- Discussion of portfolio candidates and their corresponding discount rates to be considered at the Board Investment Committee meeting on November 15, 2021.
- Discussion of certain investment strategy matters, including private equity, co-investments, and use of leverage.
- Discussion of CalPERS Funding Risk Mitigation Policy.
- Funded status has increased to 82 percent at 7 percent discount rate.
- Discount rate is currently 6.8% on a preliminary basis. The Board is considering whether to keep that discount rate or set another discount rate. Current discount rate candidates are 6.5 percent, 6.8 percent, or 7 percent, with a decision anticipated from the Board in November 2021.
In discussing the CalPERS Funding Risk Mitigation Policy during the webinar, CalPERS clarified that it is their belief that the discount rate should be decreased over time, and that the purpose of the policy is to use savings achieved in “good years” to “buy down” the discount rate, with half of savings used to buy down the discount rate and the other half of savings used to decrease contribution rates. CalPERS attempts to offset increased liabilities resulting from reductions to the discount rate from the Funding Risk Mitigation Policy to the extent possible from investment gains. Although the Funding Risk Management Policy will be brought back to the Board in 2022, the staff’s sense is that the Board appreciates the policy.
The next CalPERS Board Investment Committee meeting is scheduled for November 15, 2021, where the Board will discuss the various portfolio proposals and choose one to move forward with. The decision during that meeting may lead to a change from the current 6.8 percent discount rate. Board meetings are open to the public, in person and by video.
The October 13, 2021 Asset Liability Management Webinar slideshow can be found here.
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