Like any investor, we are pleased when returns outperform expectations. But unlike many investors, we are in it for the long haul, paying benefits for generations to come. Our long-term investment horizon allows us to view the markets differently and provides us opportunities and advantages. For instance, we aren’t spooked by short-term volatility or swayed by the latest trends.
While individual investors, financial institutions, and corporations tend to look at returns from quarter to quarter, or from one year to the next, we focus on achieving sustainable, long-term investment returns. We pay close attention to short-term performance, but we also understand it is often just a marker in time.
That’s why despite feeling good about earning a 12.4% return for the 2020 calendar year, we know that there is still a lot of work to do. While good on paper—the performance is well above our target rate of 7%—the calendar year figures only serve to provide us a midpoint checkup on the portfolio as we approach June and the end of California’s fiscal year.
Certainly a 12.4% return is encouraging considering the financial markets and economies worldwide due to the global pandemic. But we know that for CalPERS, our members, and stakeholders, the figure with the most impact is the fiscal year performance on June 30. Even then we try not to get too excited when we beat our target or too disappointed if we don’t, instead keeping our sights on the horizon.
What’s the Difference Between Calendar and Fiscal Year Returns?
Calendar year investment returns are merely a measure of the portfolio’s performance in the 12 months from January 1 to December 31. They are simply a snapshot in time and have no effect on contributions or liabilities.
Fiscal year investment returns are what counts. In California, the fiscal year runs from July 1 through June 30. The final investment returns for that 12-month time period are what we use to calculate pension contribution rates for employers and determine actuarial liabilities.
What Was Different About This Calendar Year?
This year we saw how CalPERS’ focus on investment diversification and a moderate level of risk helped our portfolio outperform during these challenging times. It demonstrated that the measures our investment team implemented, both prior to and during the pandemic, performed well.
In addition, CalPERS worked swiftly to take advantage of opportunities created in the market during the pandemic. An example includes investments in private debt led by our Opportunities Strategies team.
As we begin a new calendar year, CalPERS will continue to focus on the long term, while also monitoring short-term returns. Through careful planning and a strong understanding of the markets, CalPERS will continue to invest in a way that will benefit the fund and our 2 million members for generations.
Learn more about CalPERS’ investments, including asset classes, corporate governance, and the CalPERS investment office.