CalPERS Investment Returns 2024: Key Takeaways and Insights

CalPERS reported a 7.2% net return on investment for the 2024 fiscal year, which is a significant decrease from the 10.8% return in the previous year.

This decline in returns is largely attributed to the challenging market conditions, including high inflation and rising interest rates.

The CalPERS investment portfolio has a total value of over $500 billion, making it one of the largest pension funds in the world.

The CalPERS Funding Risk Mitigation Policy governs how any single year's investment returns impact CalPERS' long-term discount rate.

The discount rate is similar to an assumed rate of return, though it also can be viewed as a way to assess the portfolio's level of risk.

A lower discount rate can soften the blow when investment returns stumble.

In 2021, the pension fund reported a 21.3% investment return, automatically triggering a decrease in the discount rate from 7% to 6.8%.

The 2023-24 investment return of 9.3% would have triggered another cut to the discount rate.

Discussions about the Funding Risk Mitigation Policy began in July, when CalPERS announced the 2023-24 investment return.

CalPERS' overall funded status increased to 75% due to the 9.3% investment return.

The policy formally links the discount rate to investment returns, and prompts discussion on a possible rate reduction when returns beat the discount rate by 2% or more.

A fresh viewpoint: Series B Investment

The CalPERS Board has been actively discussing the Funding Risk Mitigation Policy, which governs how investment returns impact the plan's long-term discount rate.

In July, CalPERS announced a preliminary 9.3% investment return for the 2023-24 fiscal year, pushing the overall funded status up to 75%.

The funding risk mitigation policy formally links the discount rate to investment returns, prompting discussion on a possible rate reduction when returns beat the discount rate by 2% or more.

A 21.3% investment return in 2021 automatically triggered a decrease in the discount rate from 7% to 6.8%.

The 2023-24 investment return would have triggered another cut to the discount rate, but it's unclear what the current discount rate is.

Related reading: Average Investment Returns 2023

In April, the board made a significant policy change by removing the automatic cut to the discount rate from the Funding Risk Mitigation Policy.

This change allows the board to make case-by-case decisions, taking into account the impact on state, local, and school budgets.

The board used their new discretion in September to leave the discount rate at 6.8%.

Discussion of the discount rate will be folded into next year's review of CalPERS' Asset Liability Management (ALM) process.

The ALM process sets in place a road map for the next four years, and it may be among the most important CalPERS topics to watch for in 2025.