Ootgoing CalPERS Board Member Rips Earnings
Original post made by Arnold on Dec 19, 2011
December 19, 2011
"In a feisty farewell last week, an outgoing CalPERS board member, Lou Moret, called attention to the below-median earnings as Wilshire consultants delivered a quarterly earnings report.
"Is this as bad as it looks?…We are glossing over this, and it looks horrible," said Moret.
"The report shows CalPERS earnings during the last 10 years, 5.4 percent, slightly below the Wilshire median for large funds, 5.7 percent, and a broader Wilshire median for institutional investors, 5.5 percent. The CalPERS earnings for the last three years, 2.2 percent, are well below the three-year median for the two Wilshire measurements, 4 and 4.2 percent….Moret said it's a problem if a CalPERS failure to take corrective action results in "giving the state a bigger number they have to come up with," a reference to annual employer (taxpayer) pension contributions.""
CalPERS began their FY 2011-12 on July 1, with 237.5 billion in assets. Current assets are 220 billion. That is 17.5 billion more dollars taxpayers are responsible to cover, plus the ROI that they aren't earning on the taxpayer guaranteed 7.75% rate of return.
on Dec 19, 2011 at 12:59 pm
And yet CalPERS sticks to its discount rate of 7.75% and it and the public employees unions rip Standford for daring to use common sense and a lower discount rate.
This entire program seems gamed:
- Highlight the good return years while ignoring the bad years
- Never acknowledge that on average returns are lower than planned
- Pilorize anyone who points out the obvious
- Let cities, counties, state cheat by not recognizing the true cost of the current pension system
- Let as many current employees escape with unaffordable retirement packages before the true cost is known by the public
Net, it will be the future citizens and public employee unions that will get screwed by this system. And our current set of leaders continue to keep their heads in sand and believe the misrepresentations they care getting from CalPERS. Maybe it's because they all have something to gain from the current broken system.
Shame on them all for leaving the world in worse shape than they got it. When is the last time CalPERS used "fiduciary responsibility" in a sentence?
Everyone complains about the misdeeds of Wall Street not realizing that their lives will be more negatively impacted by this grand ripoff by the public sector.
I'm looking forward to hearing B's defense of this.
on Dec 19, 2011 at 2:38 pm
From the same article:
"When Dear (CalPERS chief investment officer) briefed the CalPERS board last week on economic trouble in Europe, board member Dan Dunmoyer asked if CalPERS will be able to hit its earnings target of 7.75 percent during the next decade and 8.5 percent in the following decade. "Over 20 years I'm comfortable with our return target," Dear said. "That's long enough to ride through these cycles. On the short term, I think it's going to be difficult, and I have said that. I was advised not to be so pessimistic on my point forecast.""
A couple of observations:
* Chief Investment Officer Dear said," I was advised not to be so pessimistic on my point forecast." Who advised the CalPERS CIO of being anything less than honest? That should be a concern of everyone.
* "board member Dan Dunmoyer asked if CalPERS will be able to hit its earnings target of 7.75 percent during the next decade (current decade) and 8.5 percent in the following decade." It is difficult to understand how anyone can project 7.75% returns this decade given the below median returns of 5.4% over the past ten years - that have gotten worse since this 9/30/2011 report, with projections of 8.5% returns next decade. I wouldn't give a sheet if they were projecting 20% returns if they were GAMBLING their own money but they aren't. They are GAMBLING taxpayer money.
* ""Over 20 years I'm comfortable with our return target," Dear said." You got to love his confidence when using a time frame that will far exceed his years of CalPERS employment. CalPERS, as recently as last week is still hanging on to their 20 year average returns of 8.4%, using the decade of the 90's when everyone was making big returns to justify these very problematic projections. The truth is the past decade has been a failure. And, even though the returns have averaged 8.4% for the past 20 years CalPERS is complicit in mis-managing those returns to a current 65% funding ratio (MVA). In 1999 they projected a DOW of 25,000, by 2009.
Those ten year projections were as accurate as the Myth Busters Cannon Ball. Today they want us to believe in their very rosy 20 year projections.
* CIO Dear: On the short term, I think it's going to be difficult, and I have said that. I was advised not to be so pessimistic on my point forecast.
GX wrote: "Everyone complains about the misdeeds of Wall Street not realizing that their lives will be more negatively impacted by this grand ripoff by the public sector."
CalPERS is WALLSTREET.
on Dec 20, 2011 at 10:27 am
I have an idea for removing some of the speculation on rate of return. Instead of doing actuarial calculation based on projection, do the calculations based on the past performance. That will get us out of the argument that this is just a blip. Take the last 10 or 15 year performance and use that. Payments to this fund should not be just on future speculation. It should be based on actuals.