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Calper’s CIO Is Making Questionable Decisions

Calpers, the California Public Employees’ Retirement System, has been making earth-rocking changes since the beginning of the year. Between dropping insurance protection worth one billion dollars and lowering their investments in three top-tier stocks, Californians may be questioning their trust in Calpers.

Recent Changes to Calpers Pension Portfolio

In the middle of the COVID-19 pandemic, Calpers reduced their number of shares in three big hitters. Investments in Bank of America, Facebook, and Walt Disney were reduced during the first quarter of 2020, according to the reports filed with the Securities and Exchange Commission.

They opted to purchase shares of Verizon Communications with their sell-off capital.

The sell-offs were not all good strategies. Facebook rose 26.4% in the second quarter, after a loss of 18.7% in the first quarter. Bank of America has lost traction, with a loss of nearly 39%, so far, in the first half of 2020. Disney, while seeing a loss in value due to the pandemic, was valued at its highest even just six months ago.

Calpers Other Bad Decision in 2020

Calpers made a colossal blunder in the first quarter by eliminating one of two insurance hedge funds. In 2017, the pension fund invested in tail-risk protections designed to provide insurance in the event of financial disaster. Just weeks before the coronavirus hit the United States, Calpers dropped its plan valued at one billion dollars. In addition to losing out on the significant windfall, the pension fund lost hundreds of millions of dollars in premium expenses.  

However, Chief Investment Officer justified the decision, stating the funds were expensive, regardless of advice from pension plan consultants to continue funding the insurance. While he also wanted to dump the second hedge fund, it wasn’t set to terminate until the end of the first quarter. Calpers was able to collect several hundred million dollars from that fund.

Source

Schatzker, (2020, April 10). Calpers Missed a $1 Billion Payday by Scrapping Market Hedge. Bloomberg. https://www.bloomberg.com/news/articles/2020-04-09/calpers-forfeited-a-1-billion-payday-by-scrapping-market-hedge

Lin, E. (2020, May 16). Biggest U.S. Pension Sold Facebook, Bank of America, and Disney Stock. Here’s What It Bought. Barrons. https://www.barrons.com/articles/biggest-u-s-pension-sold-facebook-bank-of-america-disney-stock-verizon-51589376715?siteid=yhoof2&yptr=yahoo

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