Pension investment returns fall short

The San Diego County Employees Retirement Association reported a 2.67 percent return on its $10.6 billion pension fund in the fiscal year that ended June 30, officials said Thursday.

The performance fell well short of the pension system’s target of 7.5 percent annual gains in value. Having a bad year or two doesn’t necessarily hurt the system if they are followed by above-target gains.

Yet achieving the target over the long term is key to the solvency of the county’s pension system, because the fund pays more to country retirees than it collects in contributions from employees and the government. Chronic failure to meet the target would eventually require higher contributions, cutting into government services and take-home pay for public workers.

In a prepared statement, pension officials reported a 9.91 percent average annual return over the previous five years, a 10-year return of 6.08 percent, and a 25-year return of 8.43 percent.

Officials didn’t say why investment performance suffered in the fiscal year. And they didn’t say how the portfolio has withstood higher volatility in stock, commodity and currency markets since June 30. The investment results were preliminary and scheduled to be updated at a Sept. 17 meeting of the pension system’s board.

SDCERA joins other major pension funds in reporting below-target performance for the 2015 fiscal year. The California Public Employees’ Retirement System, the nation’s largest at $301 billion in funds, reported a 2.4 percent return.

On Aug. 14, the fund for San Diego city workers — with a lower target of 7.25 percent — reported a 3 percent gain. In a statement, city officials said returns were boosted by gains in U.S. stocks, private equity and real estate investments, and reduced by losses in foreign stocks.

Earlier this year the county fund’s board fired its outside investment strategist, who had favored use of leveraged derivatives, and replaced its chief executive and other key officials.

Under new investment chief Steve Sexauer and CEO David Wescoe, the county’s fund has shifted away from use of leverage to a more traditional mix of stocks, bonds and alternative investments.