Eliopoulos says cutback to ‘defensive’ equities allocation lowered CalPERS’ fiscal-year returns

Pension Funds

Theodore Eliopoulos

A “defensive” position that reduced the amount of equities in CalPERS’ portfolio lowered overall returns in the fiscal year ended June 30, but Chief Investment Officer Theodore Eliopoulos saids there will be no switch to an offense game.

Mr. Eliopoulos, speaking to the Sacramento-based plan’s investment committee on Monday, said the system’s 48% equity allocation played a key part in the pension plan’s overall 11.2% rate of return, but acknowledged a 5-percentage-point cutback in equity exposure in the fiscal year prevented returns from being even better.

“Equity markets rewarded risk takers this year, not a more defensive strategy,” he said.

The $150 billion public equity portfolio saw a 19.7% return in the fiscal year.

“It’s fair to say we were early,” he said of the decision to cut the equity exposure.

Mr. Eliopoulos told the investment committee it’s “impossible to predict” when the equity run-up will stop. But he said given the California Public Employees’ Retirement System’s 68% funded status, consultant predictions of lower equity returns over the next decade and high equity valuations, executives at the $331.6 billion pension fund do not plan to go to a higher equity allocation.

Investment committee members Monday also questioned why CalPERS’ neighbor, the $208.7 billion California State Teachers’ Retirement System, West Sacramento, had managed to surpass CalPERS’ returns by 2.2 percentage points in the fiscal year.

Wylie Tollette, CalPERS’ chief operating investment officer, said the largest difference was that CalSTRS had a portfolio with a roughly 56% allocation to equities.

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