California Public Employee Retirement System is the largest defined benefit pension system in the US. It maintains a huge, well-paid professional investment staff. So, how is it doing?
CALPERS reports its annual investment results on a July 1 to July 1 basis. Today, it released its one year results for the 12 month period ending June 30, 2015. During that same 12 month period, the S&P500 gained 7.42 percent, while the Dow Jones gained 7.21 percent. So, again the question: how did CALPERS, with all of its investment know-how do when stacked up against the average Joe, who stuck his money in dull Vanguard S&P500 Index fund?
The $ 300 billion fund would have earned $ 22.26 billion, had they simply made the S&P return. Again, how did they do?
How's 2.4 percent! That means that CALPERS made all of $ 7.2 billion for the year, while indexing clocked in at $ 22.26 billion, a result that would have required zero professional investment staff and could have been accomplished with a single phone call.
How did other professionally managed large state public pension funds do? The median result for other large pension funds came in at an estimated 3 percent.
CALPERS was quick to point out that their three year annualized returns were 10.9 percent. What are the three year annualized returns for the S&P500? 17.31 percent. (Virginians should note that Virginia's VRS numbers were pitiful as well: 4.6 percent for the most recent year and barely 10 percent per year for the past three years versus 7.4 % and 17.31 % for the S&P500).
So how valuable were the high priced investment staffs at CALPERS and VRS over the past three years? Simply using index funds, instead of investment professionals, would have enabled CALPERS to gain an extra $ 50 billion over the past three years, while VRS, absent professional input, would have added an extra $ 15 billion.
Maybe you shouldn't invest like the big guys.