Economic downturn takes a toll on city and state pension systems

August 19, 8:26 AMSF Politics ExaminerArthur Bruzzone

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SAN FRANCISCO, CA --- One year into the most serious real estate crash since the Great Depression and the big pensions including San Francisco's have suffered.  CalPERS, America's biggest in assets managing the state employees' $239 billion retirement fund, declared 2.4% loss.  That's close to a $5.7 billion drop.  We're talking about the 12-month period ending June 30, 2008.

We'll get to San Francisco. But first let's look at another monster fund, CalSTRS, the Californai State Teachers' Retirement Fund - of much interest to the city's teachers. The teachers retirement fund reported a 3.7% loss.  With assets of $163 billion, that's a loss of $6 billion.

San Francisco's $15.5 billion retirement system fell in line with the two big state funds.  The city's fund lost 3.1%, preliminary results show.  That represents a $480 million loss for the 2008 fiscal year after contributions and payouts.

The good news is that these three retirement funds did slightly better than the 50 largest funds tracked by the Northern Trust Universe.  The effective national average was a loss of 4.3% for the big retirement systems.

What's noteworthy is all three funds -- CalPERS, CalSTRS, and the San Francisco Retirement System -- showed healthy returns in their real estate, private equity, and fixed equity assets in the last 12 months.  What brought the funds down were their stocks portofolios.

At this point there's no need to panic, but showing caution is due. These funds, for the last five years,  were cranking out 11.5% every year after payouts.  In general, big retirement funds need to achieve around a 7% return on their investments to meet their retiree's obligations.  With a flood of new retirees on the horizon, multi-year losses will keep the fund managers up late making ends meet.

So how these non-stock assets do in the next two years will be crucial. The full impact credit and housing collapse will take their toll in the next reporting period ending June 30, 2009.  Commercial real estate is weakening.  San Francisco's office market is showing rising vacancies for example.  So, like most Americans, it's wait and see.  The wait is for a bottom to the free fall bubble burst.

(For more, I invite you to read a piece I wrote last year titled "We're All into Hedge Funds" at Counterviews.com