CalPERS earns 1.1% on investments in 2011

Reporting from Sacramento —  The nation’s largest public pension fund, the California Public Employees’ Retirement System, posted a 1.1% return on its investment portfolio in 2011, Chief Investment Officer Joseph Dear told his board.

The 2011 performance was well below the estimated average annual return of 7.75% that the fund’s actuaries say is needed to meet current and future obligations to its members.

The $229.5-billion CalPERS provides retirement and other benefits for 1.6 million state and local government employees and their families.

CalPERS’ annual investment results, whose volatility has echoed that of the overall markets, have become the focal point in an ongoing debate about looming pension fund liabilities and the ability of future generations of taxpayers to continue financing them. Gov. Jerry Brown has said he wants to overhaul state and local government pension programs, but whether he and the Legislature have the political wherewithal to do so in an election year remains unclear.

During the 2011 calendar year, CalPERS lost 7.95% on its public equity investments, lost 2.29% on its hedge fund investments, earned 12.38% on bonds and earned 9.92% on real estate.

In the first three quarters of the calendar year, it earned about 12.37% on its private equity investments. (The availability of these results lags a quarter.)

CalPERS’ 2011 return was well off the 12.6% return for 2010 and 12.1% for 2009.

Calendar-year results, however, are used only as indicators, a CalPERS spokesman said. The fiscal year returns, posted as of June 30 each year, are the legal basis for annual decisions by the CalPERS board to raise or lower the contributions it gets from 3,100 participating government agencies, including the state of California.

As of June 30, CalPERS had a return on its investments of 20.9%, its best annual showing in 14 years. It had a return of 11.6% for fiscal 2010 and a massive recession-related loss of 23.4% for fiscal 2009.

Last fiscal year’s strong showing, combined with the signing of a number of state labor contracts that increased the amount that employees contribute to their own retirements, allowed CalPERS to lower by $170 million the amount it sought from the state government this fiscal year.

This fiscal year, the state is contributing $3.51 billion. Next fiscal year’s contribution is to be determined in the late spring.

marc.lifsher@latimes.com