Buy and Hold Returns CalPERS to Pre-Recession Heights

After more than five years, the California Public Employees’ Retirement System is about to reach the $260 billion in assets it held before the global financial crisis wiped out more than a third of its wealth. The secret to its recovery: persistence. It stuck with its asset allocation, half in stocks, throughout the turbulent years. In other words, it followed the advice wealth managers give individual investors. “We believed the markets were going to come back, and we held our allocation at around 50 percent, and that decision has been justified,” says CalPERS Chief Investment Officer Joseph Dear.

CalPERS, America’s largest public pension, was worth $253.2 billion on Jan. 17, or about 97 percent of its October 2007 pre-recession high. The fund returned 13 percent in 2012, about the same as the Standard & Poor’s 500-stock index. Its recovery slightly outpaces the average of the 100 largest U.S. public pensions, whose total assets fell from $2.9 trillion to $2 trillion from 2007 to 2009, then rebounded to almost $2.8 trillion as of Sept. 30, according to U.S. Census Bureau data. “A lot of the improvements in portfolio returns is simply reflective of the return of the market,” says Dear. “But there is still an important lesson there, which is that when the crisis was full-on, we didn’t drastically reduce our equity exposure.”