CalPERS bets big on risky plan

SACRAMENTO — As big as California's budget woes are, so are the problems lurking in its biggest pension fund.

The California Public Employee Retirement System lost nearly $60 billion in the financial markets last year. It has more than enough money to make its payments to retirees for years, but it has a serious long-term shortfall.

Local governments are pleading poverty and saying they cannot make the contributions needed to shore it up.

These problems now rest largely on the shoulders of Joseph A. Dear, the fund's new head of investments. He thinks he has the cure for what ails CalPERS, which has $180 billion in assets.

Dear wants to embrace potentially high-risk investments in hopes of higher returns. He aims to pour billions into beaten-down private equity and hedge funds. Junk bonds and real estate also ride high on his list. Then there are timber, commodities and infrastructure.

He wants to load up on many of the assets that were responsible for the fund's plunge. But over the long haul, Dear asserts, private investments will outperform stocks, and that is necessary to get CalPERS on track.

CalPERS has a lot riding on Dear's effort. The fund just posted a loss of 23 percent, the worst in its history. That leaves it 66 percent funded, the lowest in two decades, meaning it has $66 for every $100 in benefits promised to 1.6 million California public employees and their families.