Item 8a, Attachment 2, Page 1 of 24
CalPERS Trust Level ReviewInvestment Review
Period Ending June 30, 2018
Ted Eliopoulos, Chief Investment Officer
Elisabeth Bourqui, Chief Operating Investment Officer
Eric Baggesen, Managing Investment Director
Investment Committee
August 13, 2018
Item 8a, Attachment 2, Page 2 of 24
CalPERS Trust Level Review
Executive Summary• Performance
– Total Fund fiscal year 2018 (FY2018) return was 8.6%
• Public Equity returned 11.5%, contributing 5.6% of total fund return
• All program areas experienced positive performance with Private Equity achieving highest total return of 16.1%
– Total Fund FY2018 excess return was -6 bps
• Biggest contributors to FY excess return were Public Equity (-19 bps), Private Equity (-17 bps), and Real
Assets (+13 bps)
– Affiliate Investment Program returns were in line with their respective asset allocations, largely positive
for FY2018
• Risk
– The plan’s risk is driven primarily by growth assets, with performance closely tied to the equity market
– The current Barra risk model estimate for total plan volatility is 7.6%
• This is a short term estimate indicative of behavior given the current environment. The bigger risk for PERF
remains that of a severe and/or sustained drawdown in global equity markets which would not be predicted by
the model
– Current active volatility estimate is 0.5%, within the 1.5% target
Item 8a, Attachment 2, Page 3 of 24
CalPERS Trust Level Review
Performance Summary
Funds Managed
Ending
Market
Value
(MM)
Net
Return
Excess
bps
Net
Return
Excess
bps
Net
Return
Excess
bps
Net
Return
Excess
bps
Public Employees' Retirement Fund 351,807 8.6% (6) 6.7% (21) 8.1% (7) 5.6% (115)
Judges' Retirement Fund 40 1.5% 12 0.9% 17 0.5% 12 0.5% 11
Judges' Retirement System II Fund 1,522 7.5% 14 6.2% 23 7.2% 23 6.3% 4
Legislators' Retirement System Fund 114 4.8% 15 4.4% 21 5.2% 29 5.8% 31
CERBT Strategy 1 6,801 8.0% 29 6.4% 42 7.4% 42 5.9% 15
CERBT Strategy 2 1,090 6.2% 35 5.4% 40 6.2% 40 - -
CERBT Strategy 3 395 4.7% 27 4.3% 33 5.1% 42 - -
CalPERS Health Care Bond Fund 443 -0.3% 7 1.8% 3 2.5% 28 4.0% 32
Long-Term Care Fund 4,515 4.0% 8 3.7% 13 4.1% 20 4.4% 14
Terminated Agency Pool 134 2.3% - 3.3% - 3.3% - - -
10-YrAs of June 30, 2018 1-Yr 3-Yr 5-Yr
Item 8a, Attachment 2, Page 4 of 24
CalPERS Trust Level Review
Note: Actuarial Rate of Return was 7.75% during FYs 2007/8-12/13 and 7.5% for FYs 2013/14-16/17.
The rate is 7.375% for FY 2017/18.
PERF 10 Year Cumulative Returns
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Total Fund Cumulative Returns
Total Fund FY Returns CalPERS Policy FY Returns
Total Fund Cumulative Returns CalPERS Policy Cumulative Returns
Actuarial Rate Cumulative Returns
Item 8a, Attachment 2, Page 5 of 24
CalPERS Trust Level Review
PERF Short-Term vs. Long-Term Performance
1.0%
-1.8%
-0.5%
5.7%
9.0%
6.7%
5.6%
1.7%
9.3%
8.0%
0.4%
16.1%
11.5%
8.6%
-4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
Liquidity
Inflation
Real Assets
Income
Private Equity
Public Equity
Total Fund
1-Year Total Returns 10-Year Total Returns
Item 8a, Attachment 2, Page 6 of 24
CalPERS Trust Level Review
PERF Policy Benchmark: Expected vs. Realized
*Return and volatility expectations are based on the 2013 ALM cycle capital market assumptions. The range is estimated using arithmetic returns and a 90% confidence level.
-10%
0%
10%
20%
30%
Total Fund Public Equity Private Equity Income Real Estate Infrastructure Forestland Inflation Liquidity
An
nu
aliz
ed R
etu
rn %
2013 ALM Return Expectations vs. 5-Yr Realized Policy Benchmark Returns*
Item 8a, Attachment 2, Page 7 of 24
CalPERS Trust Level Review
PERF Rolling 5-Year Excess Returns
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Total Fund Rolling Excess Return
Total Fund 1-Year Excess Return Total Fund Rolling 5-Year Excess Return
Item 8a, Attachment 2, Page 8 of 24
CalPERS Trust Level Review
PERF 1-Year and 5-Year Excess Returns
(15)
53
(23)
73
(222)
4
(7)
36
36
118
38
(251)
(42)
(6)
-300 -250 -200 -150 -100 -50 0 50 100 150
Liquidity
Inflation
Real Assets
Income
Private Equity
Public Equity
Total Fund
1-Year Excess BPS 5 Year Excess BPS
Item 8a, Attachment 2, Page 9 of 24
CalPERS Trust Level Review
Excess Returns Attribution (as of June 30, 2018)
Positive contribution from public
assets, predominantly Fixed
Income
Negative contribution from private
assets, predominantly Private
Equity
Negative contribution from
underweights to private assets
requiring proxying with publics
Key 5 Year Excess Return Drivers: Average
Weight in
Plan
5 Year 1 Year 5 Year 1 Year 5 Year
Total Excess Return (bps) (6) (7)
Public Program Contributions (11) 21
PUBLIC EQUITY 52% (42) 4 (19) 3
INCOME 18% 38 73 8 13
INFLATION 6% 36 53 3 3
LIQUIDITY 3% 36 (15) 2 (0)
TLPM 0% (3) (1)
OTHER PLAN LEVEL 2% (1) 3
Private Program Contributions (4) (25)
PRIVATE EQUITY 9% (251) (222) (17) (21)
REAL ASSETS 10% 118 (23) 13 (4)
Allocation Management 9 5
Public Proxy Performance 2 (1) (7)
1 Contribution figures are calculated on monthly basis and aggregated over the respective period. 2 Impact of not obtaining full desired interim policy exposure to private asset classes and proxying
these with public assets.
Program Excess
Return (bps)
Contribution to Plan
Excess (bps) 1
Positive contribution from Real
Assets, Allocation, and Fixed
Income
Negative contribution from Public
and Private Equity
Key 1 Year Excess Return Drivers:
Item 8a, Attachment 2, Page 10 of 24
CalPERS Trust Level Review
PERF Asset Risk Highlights (as of 6/30/2018)
Total Plan Risk
• The plan’s risk is driven primarily by growth assets and the performance of PERF is closely tied to the equity market
• Over the past 6 months, market volatility increased somewhat, but overall the environment has remained calm by
historical standards
– The Barra risk model’s estimate for total plan volatility is 7.6%. This is a relatively short term estimate indicative of
the plan’s volatility given the current environment. Rapid shifts in volatility regime can occur and would not be
predicted by this model
• The bigger risk for PERF remains that of a severe and/or sustained drawdown in global equity markets. Over the past 20
years, two such events occurred, during which the current portfolio would have lost on the order of $100B. Such losses
today would leave the funded status of the plan around 50%
Active Risk
• Current active volatility estimate is 0.5%, within the 1.5% target. Active volatility provides a quantification of how actual
implementation of the portfolio differs from the policy benchmark
Other considerations
• Well diversified across individual issuers/companies
• Adequate liquidity coverage and modest leverage level
• Counterparty risk remains modest
Item 8a, Attachment 2, Page 11 of 24
CalPERS Trust Level Review
Publ ic Equity, 48.8%
Private Equity, 7.7%
Income, 22.5%
Real Assets, 10.8%
Liquidity, 3.4%
Inflation, 5.9% Trust Level, 0.9%
Portfolio Allocation
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%Total Fund and Performance Contribution of Growth Portfolio
Rolling 12-Month Returns
Total Fund Growth Portfolio Performance Contribution to Total Fund
Source: BarraOne, State Street Bank
Publ ic Equity,
70.4%
Private Equity, 13.0%
Income, 2.3%
Real Assets, 11.0%
Liquidity, 0.0%
Inflation, 2.7% Trust Level, 0.6%
Forecast Contribution to Volatility
Growth Assets Dominate RiskAs of June 30, 2018
Item 8a, Attachment 2, Page 12 of 24
CalPERS Trust Level Review
Volatility Estimates Interpretation
Note: This is an illustrative example with CalPERS risk and return capital market assumptions
from 2017 ALM workshop applied to portfolio positions on Jun 29, 2018.
* Most risk models assume that returns are evenly distributed around an average expectation (as shown
above). In the real world, worse outcomes than these occur more frequently than implied by the models.
150
200
250
300
350
400
450
500
550
600Ju
l-10
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
Jul-1
6
Jan-
17
Jul-1
7
Jan-
18
Jul-1
8
Jan-
19
Jul-1
9
Jan-
20
Jul-2
0
PERF
NA
V in
B $
Range of Outcomes Implied by ALM's Capital Market Assumptions
68%
probability*
95%
probability*
Item 8a, Attachment 2, Page 13 of 24
CalPERS Trust Level Review
Drawdown Risk
Scenario Simulated Impact on Current Portfolio
Simulated Return Gain/LossEstimated Funding
Ratio*
Subprime and Credit Crisis
(Oct 07 – Mar 09)-34% -$119B 44%
Tech Crash and Recession
(Jan 00-Mar 03)-22% -$78B 52%
*Estimate is a one year projection. Assumes starting funding ratio of 71% as of 6/30/2018 and one year growth in liabilities and cash flow
projections as per CalPERS Actuarial Office.
• Looking at how today’s portfolio would have performed during past market events provides an alternate perspective on risk
• While no two market declines unfold in the same way, historical simulation can provide an indication of the magnitude of potential losses
Item 8a, Attachment 2, Page 14 of 24
CalPERS Trust Level Review
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
1928 1933 1938 1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018
S&P composite declines from all-time highs
Crash of 1929
1937 Fed Tightening
Post-WWII Crash
Flash Crash of 1962
Tech Crash of 1970
Stagflation/ OilEmbargo
Volcker Tightening
1987 Crash/ Program Trading
Tech Bubble Collapse
Global Financial Crisis
Historical Equity Market Drawdowns
Source: Robert Shiller, Bloomberg, J.P. Morgan Asset Management, BarraOne
As of 06/30/18
Item 8a, Attachment 2, Page 15 of 24
CalPERS Trust Level Review
Updates to Performance and Risk Reporting
• Semi Annual Trust Summary (Eliminating)– Content also existed in either the Monthly Update - Performance and Risk Report
or in the annual program reviews
• Monthly Update – Performance and Risk (Updating)– Consolidates PERF and Affiliate trusts into single report with consistent
presentation
– Adds realized volatility statistics & benchmark descriptions for Affiliate trusts
– Removes asset/liability assumptions as they are included in the annual program
reviews
– Eliminates unnecessary text
– Improves ability to adhere to accessibility standards
Item 8a, Attachment 2, Page 16 of 24
CalPERS Trust Level Review
Appendix
Item 8a, Attachment 2, Page 17 of 24
CalPERS Trust Level Review
PERF Asset Allocation
*Interim strategic targets were adopted by the Board and effective April 1, 2018.
Asset Class
As of: June 30, 2018
Current
AllocationGrowth 56.6%
Public Equity 48.8%Private Equity 7.7%
Income 22.5%Real Assets 10.8%
Real Estate 9.0%Infrastructure 1.2%Forestland 0.6%
Inflation 5.9%Liquidity 3.3%Trust Level 0.9%Total Fund 100.0%
Public Equity48.8%
Private Equity7.7%
Income22.5%
Real Assets10.8%
Inflation5.9%
Liquidity3.3%
Trust Level0.9%
Growth
56.6%
Item 8a, Attachment 2, Page 18 of 24
CalPERS Trust Level Review
PERF Contribution to Return
Asset Class
1-Yr
Average
Weight (%)
1-Yr
Return (%)
1-Yr
Contribution
to Return (%)
Growth 57.3 12.1 6.9
Public Equity 49.5 11.5 5.7
Private Equity 7.8 16.1 1.2
Income 19.8 0.4 0.1
Real Assets 10.6 8.0 0.9
Real Estate 8.9 6.9 0.6
Infrastructure 1.1 20.6 0.2
Forestland 0.6 1.9 0.0
Inflation 7.4 9.3 0.7
Liquidity 4.2 1.7 0.1
Trust Level 0.7 - -0.1
Total Fund 100 8.6 8.6
Item 8a, Attachment 2, Page 19 of 24
CalPERS Trust Level Review
PERF Asset Liability Management Assumptions
• Expected volatility and return is based on the 2013 ALM Workshop and uses the short-term (1-
10year) expected return from capital market assumptions.
• Data points scaled based on size of assets.
Total Fund
Public Equity
Private Equity
Income
Real Assets
Inflation
Total Fund
Public EquityPrivate Equity
Income
Real Assets
Inflation
-5%
0%
5%
10%
15%
20%
-5% 0% 5% 10% 15% 20% 25% 30%
Ret
urn
%
Volatility %
Return and Volatility (Expected vs 5-Year Realized)
More Risk
Mor
eR
etu
rn
Item 8a, Attachment 2, Page 20 of 24
CalPERS Trust Level Review
Recent market volatility slightly higher, but still low historically
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%S&P 500 12 m trailing volatility
average
Source: Bloomberg
Item 8a, Attachment 2, Page 21 of 24
CalPERS Trust Level Review
Volatility estimates vary with models used
Barra Model Used for
Risk Reporting
(Short term)
Estimate from ALM’s
Capital Market
Assumptions
(Long term)
Forecasted
Absolute Volatility - PERF7.6% 11.3%
• Risk models are calibrated with historical data and are especially sensitive to
historical look back period
• Barra’s model used for risk reporting is calibrated from last 1-3 years of data, while
20+ history is used for models utilized for ALM purposes
• Longer term model volatility is higher, reflecting a broader range of market
environments
Item 8a, Attachment 2, Page 22 of 24
CalPERS Trust Level Review
Equity returns for last two years
600
650
700
750
800
850
900
Jul-
16
Au
g-1
6
Sep
-16
Oct
-16
No
v-1
6
Dec
-16
Jan
-17
Feb
-17
Ma
r-1
7
Ap
r-1
7
May
-17
Jun
-17
Jul-
17
Au
g-1
7
Sep
-17
Oct
-17
No
v-1
7
Dec
-17
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun
-18
FT
SE
Glo
bal
Tot
al R
etur
n In
dex
Leve
l
Item 8a, Attachment 2, Page 23 of 24
CalPERS Trust Level Review
Equity returns for FY 2017-18 - A year of two halves
700
720
740
760
780
800
820
840
860
880
900
Jul-
17
Au
g-1
7
Sep
-17
Oct
-17
No
v-1
7
Dec
-17
Jan
-18
Feb
-18
Ma
r-1
8
Ap
r-1
8
May
-18
Jun
-18
FT
SE
Glo
bal
Tot
al R
etur
n In
dex
Leve
l
Item 8a, Attachment 2, Page 24 of 24
CalPERS Trust Level Review
0
5
10
15
20
25
30
35
40
45
50
-35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55%
Fre
qu
en
cy
Annual Net Returns
Normal Curve w/same return and
volatility as actual
Historical Returns Are Not Normally DistributedPERF’s Rolling Annual Returns: Jun 89-Jun 18
Historical
Volatility: 7.3%
Average Historical
Rolling Return: 9.1%