California State Pension and Stock Market Declines

I've been wondering what the impact of the recent market sell off would have on state pensions. One would assume that pension returns wouldn't drop at the same rate as the stock market as they're diversified across various asset classes. Yet, considering the pensions are of concern, any lower than planned returns will hurt.

Chief Investment Officer has an article up on how California is doing (these returns are prior to the December sell-off).

Baggesen [acting chief investment officer] didn’t given exact investment returns in detailing the low investment numbers to the CalPERS Investment Committee on Dec. 17, but CalPERS data from July 1 through Nov. 30 shows that the system lost overall a 1.9% during the five-month period.

Note that this starts from July 1st through November 30th. Looking at charts, the S&P 500 closed at 2,718 on Friday, June 29th. On Friday, November 30th, the S&P 500 closed at 2,760. So it actually increased during this time frame by 1.5%.



Among CalPERS’s major asset classes seeing drops during the first five months of the fiscal year, the $165.8 billion global equity portfolio lost 2.6%, the $91 billion fixed-income portfolio lost 2.2%, and the $11.4 billion inflation-sensitive asset class, which is made up of inflation-linked bonds and commodities, lost 3%.

So the S&P 500 increased 1.5% during that time, but the global equity portfolio lost 2.6%. Now, of course, this isn't apples to apples. The S&P 500 is just US stocks while CalPERS's breakout is on a global basis.

Since November 30th, the S&P 500 has dropped about 12.4%. Could one assume that the global equity portfolio is down at least 12.4%?

There was one bright spot.

CalPERS Investment Committee member Richard Costigan said at the Dec. 17 meeting the only “bright spot” looking ahead for CalPERS was real estate returns. However, if the feds raise rates on Wednesday as expected, it could result in marketplaces like “Los Angeles, Seattle, Miami, Las Vegas, Fresno, beginning to cool.”

I might have to look into what real estate CalPERS owns. I wonder if they own specific building, land, homes or if they own REITS.

Are we heading into a bear market? Or will potential trade deals help push the markets to new heights? At some point, I would have to assume we're going to have a protracted bear market and not a market that slams lower and then quickly rebounds. The following news on President Trump and Fed Chair Powell could have interesting ramifications if the potential of the following increases. Per

Marketwatch:

President Donald Trump has discussed firing Federal Reserve Chairman Jerome Powell, Bloomberg reported late Friday night, as his frustration with Powell intensified after this week's interest-rate increase and stock-market losses. The report said advisers close to Trump are not convinced he would move against Powell. 

Some of the commentary I've read is that the market could tank if this happens. Why? It would indicate the independence of the Fed is at risk. I could also see the markets rapidly increasing as they'd see the next Fed Chair as being dovish.