Key Risks to the System Todays Discussion Together Investment - PowerPoint PPT Presentation

Addressing Key Risks to the System

Today’s Discussion Together Investment Employer Climate risk risk/liquidity affordability 2

Investment Risk and Liquidity

Where We Stand $395 2 $24.2 71% billion million billion Funded status (estimate) Market value Members Paid in benefits 4

Challenges • Challenges over the next 10 years • Declining interest rates, increasing profit margins less likely to repeat • Current valuations are high • Slower global economic growth • Fewer opportunities to generate excess returns • Underfunded status limits options • Uncontrollable factors • Unpredictability of current economic environment 5

Strong Foundational Challenges Capital Injection Shorter Amortization Lower Discount Rate New Asset Allocation Additional contribution to State and School Shortened the amortization period for Lowered the discount rate from Adopted new strategic asset pension obligations employers to pay their unfunded liability 7.5% to 7% over three years allocation effective July 1, 2018 (assumed rate of return) 30 yrs. 20 yrs. 7.5 % $9 billion from the State = significant $904 million to Schools long-term savings 7 % 6

Investment Focus: CalPERS Advantages + = Size Increased Long-Term Branding chance Horizon Liquidity of success 7

Philosophy of the Investment Strategy Review In-house External New Strategies Manager Direction Analysis 8

Private Equity Co-Investments Innovative Private Equity Models

Employers’ Ability to Pay

How CalPERS’ Retirement Benefits are Funded 11

Public Agency Employer Contributions 12

Our Board Monitors Employer Contribution Rate Impact

We’re Working Toward the Same Goal Pension Partnerships Funding Outlook Tool Programs

Climate Risk

How We Are Addressing Climate Risk 16

Working With You

Laser-focused on our top priorities Benefits are only as secure as our employers’ ability to pay them

Thank you Questions?

Appendix

Strategic Goals Focuses on Reducing Risk Strategic Goals Fund Sustainability Health Care Affordability Reduce Complexity Risk Management Talent Management 21

Current Value $395 billion 6.7% 5.8% 9.1% 5.8% 8.1% 2018/19 5-yr 10-yr 20-yr 30-yr Portfolio Annualized Annualized Annualized Annualized Return Return Return Return Return 22

71% Funded status goal: 100% 50-60% 70-80% 90-100% Estimate for 2019

10-Year Projection of Funded Status 24

How We Got Here – 20-Year Look 25