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CalPERS investment chief sees 'no place to hide' in markets

January 30, 2009 |  3:24 pm

There doesn’t appear to be a lot of philosophical or practical daylight between Joseph A. Dear, the new chief investment officer of the country’s largest public pension fund, and the labor-oriented board that hired him.

And he doesn't see much daylight in gloomy financial markets, either.

Dear, 57, is leaving a similar post at the Washington State Investment Board to run the $177-billion portfolio at the much larger, 1.6-million-member California Public Employees’ Retirement System, or CalPERS. He’ll start at CalPERS’ Sacramento high-rise headquarters on March 2.

"The job I had here at Washington State is similar to the job at CalPERS, though CalPERS is on a larger scale," Dear said in an interview today. He said he believed that his combination of experience in investment management and public administration was "what CalPERS was looking for."

Joedearcalpers Dear concedes that he faces both "a challenge and an opportunity" in helping the giant pension fund stabilize its value and try to recoup a stunning loss of $62.4 billion, or 26%, since July 1, as financial markets worldwide plummeted.

Not surprisingly, Dear indicated that he’s in sync with the fund’s 13-member board of directors on the broad issues of protecting healthcare and defined-benefit retirement security for the state, local government, school district and public university employees who participate in the system.

Fixed pensions, unlike the increasingly more common 401(k) retirement savings programs, "are a major tool for securing economic security in retirement," he said. "It’s of interest to everyone in the country and the state of California."

But from the viewpoint of non-government workers, the risk is that CalPERS' investments won't be sufficient to cover promised benefits -- leaving taxpayers to pony up, at a time when their own retirement savings have dwindled. . . .

CalPERS already has warned state and local government units that they may have to increase contributions to the fund to preserve promised benefits if the portfolio doesn’t recover.

Dear cautioned that "there’s no place to hide for any investor in this environment." But he stressed that large institutional investors such as CalPERS must "maintain the courage of convictions [as] long-horizon investors."

Though he declined to address in detail any of CalPERS’ investment policies, Dear said he agreed with the fund’s program of maintaining an increasingly diverse portfolio of investments, which includes domestic and foreign stocks, corporate bonds, real estate, private equity funds and commodities.

But with markets volatile and asset values still falling in many sectors, it’s also important for CalPERS to periodically reevaluate its mix of holdings, he said. That process is at the top of the CalPERS board’s to-do list for this spring, the fund announced late last year.

CalPERS has stumbled badly with some of its real estate investments, in particular, over the last year.

Stemming losses and planning for the future are essential tasks during a deep economic recession with no recovery imminent, Dear said.

"What we have to see is a return of more normal functioning of the credit markets and stabilization of housing prices," he said.

But "who knows" when those turnarounds will come? he said.

-- Marc Lifsher

Photo: Joe Dear. Credit: Washington State Investment Board