While you might not think a California pension fund’s annual report can help you with your client portfolios, knowing these five points could make a big difference in their performance
Calpers -- the sixth biggest pension fund in the world with more than $301 billion in assets under management -- released its 2015 annual report last week and while much of it probably isn’t worth the paper it’s written on, there are a number of interesting highlights advisors should be aware of.
Here are the top five.
Pension members made money in 2015
Did your clients make money in 2015?
The fund’s net return in 2015 was 2.4%. Over the past three and five years the fund’s delivered annualized returns of 10.9% and 10.7% respectively beating its benchmark by 59 and 34 basis points annually; and that’s with a fixed-income weighting of 26%. If you had a significant fixed-income presence in your client portfolios this past year and delivered positive returns you clearly were working harder than most when it comes to equities.
Global equities a big deal
The fund’s global equity allocation at the end of 2015 stood at 51% of the portfolio with approximately 67% of that invested in stocks outside the U.S. Remembering that the U.S. equity markets are the world’s biggest and yet it’s allocated less than $60 billion to U.S. stocks, Canadian advisors are wise to consider expanding their weighting in global equities in 2016 if they haven’t already done so.
Live within your means
While its positive return in 2015 is good news for pensioners, the bad news was it paid out more in benefits than it took in in contributions, the first time in its history. As a result Calpers has had to implement a Funding Risk Mitigation Policy to reduce its unfunded liability and risk to the system. Client’s like pensions are no different. If you take in less than you pay out eventually it will bite you you-know-where.
Fees do make a difference
Calpers paid out $1.04 billion in fees in 2015 or 0.35% of its total assets under management. That doesn’t seem like much for such a huge fund but when you consider that the entire amount could be invested in a collection of passive ETFs for about one-fifth the current investment expense it becomes clear fees matter. Certainly, California’s pensioners would prefer to keep $800 million than for it go to investment managers, etc.
Alternative investments remain important
If you include real estate, private equity and absolute return strategies to the mix, Calpers has approximately $18 billion or 6% of its portfolio invested in alternatives. If you haven’t explored putting a small piece of your client’s portfolio in alternatives, perhaps 2016 is the year. Taken together, alternatives have met or exceeded the real returns of equities over the past five years.
Here are the top five.
Pension members made money in 2015
Did your clients make money in 2015?
The fund’s net return in 2015 was 2.4%. Over the past three and five years the fund’s delivered annualized returns of 10.9% and 10.7% respectively beating its benchmark by 59 and 34 basis points annually; and that’s with a fixed-income weighting of 26%. If you had a significant fixed-income presence in your client portfolios this past year and delivered positive returns you clearly were working harder than most when it comes to equities.
Global equities a big deal
The fund’s global equity allocation at the end of 2015 stood at 51% of the portfolio with approximately 67% of that invested in stocks outside the U.S. Remembering that the U.S. equity markets are the world’s biggest and yet it’s allocated less than $60 billion to U.S. stocks, Canadian advisors are wise to consider expanding their weighting in global equities in 2016 if they haven’t already done so.
Live within your means
While its positive return in 2015 is good news for pensioners, the bad news was it paid out more in benefits than it took in in contributions, the first time in its history. As a result Calpers has had to implement a Funding Risk Mitigation Policy to reduce its unfunded liability and risk to the system. Client’s like pensions are no different. If you take in less than you pay out eventually it will bite you you-know-where.
Fees do make a difference
Calpers paid out $1.04 billion in fees in 2015 or 0.35% of its total assets under management. That doesn’t seem like much for such a huge fund but when you consider that the entire amount could be invested in a collection of passive ETFs for about one-fifth the current investment expense it becomes clear fees matter. Certainly, California’s pensioners would prefer to keep $800 million than for it go to investment managers, etc.
Alternative investments remain important
If you include real estate, private equity and absolute return strategies to the mix, Calpers has approximately $18 billion or 6% of its portfolio invested in alternatives. If you haven’t explored putting a small piece of your client’s portfolio in alternatives, perhaps 2016 is the year. Taken together, alternatives have met or exceeded the real returns of equities over the past five years.
