Fund fiasco
Pension pitfalls in California
Good morning, fund forecasters. This is your Stock Market Rundown for May 14th, 2024. Thanks for tuning in once again. Let’s get into it:
TODAY’S TOP STORY: CALPERS’ GOLDEN GAMBLE
Imagine being put in charge of half a trillion dollars. That’s Stephen Gilmore’s new job: the seasoned investment exec just became the new head of the California Public Employees Retirement System, better known in the industry as Calpers.
As the pension fund that provides retirement benefits to public employees in California, Calpers is one of the biggest pools of money on the face of the earth. But as Gilmore settles into his new office chair, he might want to check for a target on his back.
That’s because the last two people who had the Chief Investment Officer role lasted 18 months each… barely enough time to get your Warren Buffett biographies moved into the office bookshelf.
Turnover at the top has taken a toll on performance: Calpers’ returns have been lagging in recent years—which could threaten the financial futures of the fund’s two million pension beneficiaries.
Now, Calpers is leaning into risk, jacking up its private markets allocation from 33% to 40%. That means it’s investing less in publicly-traded stocks, and more in private equity and private credit.
Defending the decision, management pointed out that private equity was the top-performing asset class in the past decade. Haven’t these guys ever heard of “past performance does not guarantee future results”? If a recession hits, the new chief’s biggest investment might end up being in antacids and stress balls.
SO WHAT ELSE IS GOING ON?
Nestle is investing millions in Brazil to expand its Nescafe instant coffee brand. Apparently, Brazilians drink four to six cups of coffee a day, which is probably how they stay up and samba all night.
Even virtual worlds can suffer from recessions. Roblox cut its revenue forecast as players pared back in-game spending.
Airbnb’s stock got hammered on management issuing a quarterly forecast as gloomy as a vacation rental during hurricane season.
Robinhood, the app-based trading platform that rose to fame during the YOLO era of crypto, is still around, and now hawking a credit card. Those who blew their accounts to smithereens on margin need not apply.
That's the end of today's briefing, pals; let’s reconvene bright and early tomorrow. Yours in capitalism, The Axe
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