California Political Influence versus Fiduciaries
Managing public pension fund money with multiple stakeholders is a complex undertaking, dealing with politicians and implementing new legislation is even more challenging. The California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the United States, reported a 1% return on investments for the twelve months that ended June 30, 2012. It fell short of its benchmark that returned 1.7%. Public equities both U.S. and international took a major hit, while real estate investments helped stabilize portfolio performance. Fund assets measured around US$ 233 billion at the end of the fiscal year.
“The last twelve months were a challenging period for all investors as the ongoing European debt crisis and slowing global economic growth increased market volatility and reduced equity returns,” said Joe Dear, CalPERS Chief Investment Officer. “It’s a clear reminder that we must remain focused on performance, risk and internal controls in today’s financial environment.”
Sovereign wealth funds, public pensions, and other governmental investors tend to invest money outside of their country, state, or territory for various reasons. Some investors have an internal mandate that requires local investment, occasionally at the cost of superior financial return. In sub-Saharan Africa a majority of public investors park money into local projects, real estate, and bonds. Financial returns maybe sacrificed for social gains. This can be confusing for investment managers to prioritize and rank investments. Social returns are also hard to benchmark, it is more of an art than science.
The CalPERS Board of Administration has the sole fiduciary responsibility for the management of CalPERS assets. Depending on the circumstance, there can be tension between public pensions and the California legislature.
Politicians see a giant pot of money, sometimes forgetting that the fund has pension obligations.
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