CalPERS Expects 5.8 Percent Return With New, Less Volatile Allocation: Report

CalPERS expects to see an annual return of 5.8 percent under its new, more cautious allocation strategy, according to documents posted online by the pension fund this week.

The pension fund implemented the new allocation in September in anticipation of slower market growth over the next few years.

Notably, the expected return figure falls short of both CalPERS’ discount rate, which currently sits at 7.5 percent but will be lowered to 7 percent by 2020.

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CalPERS’ caution mirrors outlooks from public pension funds across the United States as they try to grapple with investment forecasts of slow market growth over the next decade.

The new CalPERS allocation reduces the portfolio’s more volatile stock and private equity sectors and increases allocations of more stable investments such as real estate and infrastructure. The board expects to review the allocation again in 2018.

In December, CalPERS staff said the fund’s 10-year expected return was 6.2 percent. They expected annual returns to jump to 7.83 percent in the decades to follow. As a result, the fund’s long-term average would more closely align with CalPERS’s new discount rate, which the board voted in December to lower from 7.5 percent to 7 percent by 2020.

CalPERS spokeswoman Megan White told Reuters in an email on Tuesday that the 6.2 percent expectation is “more reflective of the desired allocation, and what we expect will emerge from the [asset liability management] meetings over the coming year.”