The California Public Employees' Retirement System, CalPERS, has averaged a 4.5 percent return over the past decade, yet the pension fund is sticking with its goal of achieving a 7.75 percent rate of return over the long-term, Joe Dear, CIO of CalPERS, told CNBC on Thursday.
“A seven and three-quarters is a challenging number, but it has been the return objective for CalPERS since 2003, so we're not new at this. It's still below the medium for most public pension plans in the U.S.," said Dear, who oversees $226 billion in assets.
“We’re big and we’re long-term and the long horizon gives us the flexibility to think about riding out the ups and downs that come with the market,” Dear added.
CalPERS is looking at asset allocations that move away from the U.S. and into the global marketplace.
"If you can ride out the ups and downs in the political risks of emerging markets, you can get more return than you get in developed domestic markets," he said.
In terms of its portfolio, CalPERS expects private equity managers to give them three percent above what they will earn in the public markets, Dear went on to say.
"This is a key part of our strategy ... of hitting our return goal of 7.75 percent and to do that you got to be with the best managers," he added.
Although public pensions are facing shortfalls across much of the US, which will ultimately be settled in the political arenas, the pension promise that has been made has to be kept, Dear said.
"As an investment manager I'll respond to the changes that will be necessary should pension benefits be adjusted," he concluded.
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