STUMP » Articles » Pension Assets: Investment Returns are in for FY 2017 and They're GREAT! » 31 July 2017, 12:23

No, I didn’t up my meds. I’m just parroting the latest press releases, along with the gently massaged press releases, announcing public pension fund investment results for their fiscal years (most of them run from July 1 – June 30).

INVESTMENT RETURN ANNOUNCEMENTS

Let’s hit them quickly:

Calpers:

CalPERS Posts Preliminary Gains of 11.2% for 2016-2017 Fiscal Year
Strong equity gains of 19.7% drive funded ratio up 3% to 68%.

The California Public Employees Retirement System (CalPERS) reported a preliminary 11.2% return for the 2016-2017 fiscal year, bringing assets to $323 billion.

CalPERS’s Public Equity program delivered the strongest returns, generating a 19.7% preliminary net gain. Private Equity’s preliminary net returns were 13.9%, followed by Real Estate with a 7.6% preliminary net return.

Based on the preliminary fiscal year returns, CalPERS’s overall funded status is estimated to have risen 3% from the previous fiscal year to 68%. This estimate is based on a 7% discount rate.

Calstrs:

CalSTRS Reports 13.4 Percent Net Investment Return for FY 16-17
Ongoing emphasis on 30-year investment horizon and progress toward long-term funding plan.

WEST SACRAMENTO, Calif. – July 20, 2017 – The California State Teachers’ Retirement System announced today that the fund posted a 13.4 percent net of fees return for the 2016-17 fiscal year, with growth being driven by strong performance across all markets, led by non-U.S. equity. As of June 30, 2017, the total fund value was $208.7 billion.

Rhode Island:

RI pension fund earned 11.6% during 2016-17

PROVIDENCE, R.I. (WPRI) – Rhode Island’s $8-billion state pension fund earned 11.6% on its investments during the 2016-17 fiscal year, General Treasurer Seth Magaziner’s office said Wednesday.

The pension fund, which pays for the retirement benefits of state and local workers, added $851.4 million and beat its benchmark during the year, according to the treasurer’s office. The fund’s value stood at $8.04 billion as of June 30, its highest level since May 2015. Its all-time record high was $8.7 billion in October 2007.

Last September, Magaziner announced that he would significantly scale back the pension fund’s investments in hedge funds, which were added to the portfolio by his predecessor, Gov. Gina Raimondo, when she was treasurer. His office dubbed the new approach “Back to Basics.”

Connecticut:

Connecticut pension fund returns surpass estimates

State Treasurer Denise Nappier says Connecticut’s two largest pension funds generated double-digit investment returns during the last fiscal year, which ended June 30.

The Democrat says the State Employee’s Retirement Fund had a 14.34 percent return while the Teachers Retirement Fund saw a 14.40 percent return. She says the results “significantly surpassed” fiscal year 2017 actuarial assumed rates of return, which were 6.9 percent for the state employees fund and 8 percent for the teachers.

Virginia:

Virginia Retirement System Releases Annual Oversight Report
State trust fund increased $5.3 billon to $72.4 billion.

The Virginia Retirement System (VRS) reported in its recently released annual oversight report that its trust fund held $72.4 billion in assets as of March 31, an increase of $5.3 billion from a year ago, and that its investment return was 10.7% for the year ending March 31.

The one-year return outperformed the VRS’ benchmarks, however, the fund’s three-year return of 6.3%, and 10-year return of 5.1%, were below the 7.0% assumed rate of return.

COMING BACK TO EARTH

First, how did the broad market do from July 1, 2016 – June 30, 2017?

The S&P 500 was up 15%, the Dow was up 19%, and NASDAQ was up 26%.

Those “expectations-breaking” public pensions returns don’t look all that amazing now, do they?

To be fair, one shouldn’t merely compare the fund results to the stock indices as I did above, as none of these funds are taking a 100% equity strategy, nor should they.

The appropriate benchmarks, for evaluating the asset managers (and not the people who determine what the broad allocation should be by class, credit quality, etc.), would be a basket of indices weighted appropriately for the asset mix.

(Performance attribution can get sticky, but there are ways to break it down for each piece a particular group controls Here is a discussion from 2003, which covers many of the basics, touching on pensions and insurance. This 1992 discussion just looks at annuities, iirc.).

Go back above to the Calstrs announcement, which has this appropriate disclaimer after the bit I quoted:

This year’s performance marks a successful year for CalSTRS following two fiscal years with single digit returns. However, in keeping with CalSTRS’ long-term focus, Chief Investment Officer Christopher J. Ailman cautioned against making too much of a single year’s high performance.

“Just as one bad year will not break us, one good year won’t make us. We intentionally keep our eyes focused on a 30-year horizon and make our adjustments with that timeframe in mind, rather than reactively responding to any given situation at-hand,” Mr. Ailman added. “Investment performance over time is the true hallmark and measure of success in a pension fund like CalSTRS, as we aim to achieve long-term value creation to secure the retirement futures for more than 914,000 California educators.”

Lovely, lovely.

PUBLIC PENSION ASSET WEEK AT STUMP!

So this week, I will be concentrating on what’s going on with the asset side of public pensions — and there’s plenty to look at, including updated Public Plans Data, including FY 2016 results (the announcements above are for FY 2017).

And yes, for now, I will ignore that a really big threat to Calstrs is the very long history of undercontributions, and not their investment performance per se.

That can wait for another time.