Tag: pension investment fees

Auditors Asking Questions on Record-Setting Bonuses Given to Wisconsin Investment Board

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Everyone appreciates a pat on the back for a job well done.

But auditors are raising concerns about whether the Wisconsin State Investment Board, the entity that handles investments for the state’s pension funds, went a little overboard by handing out $13.3 million worth of bonuses in 2013—the most ever handed out by the Board.

The Legislative Audit Bureau, the agency set up by Wisconsin to evaluate and audit other state agencies, is asking the Investment Board to review its compensation policy in light of the bonuses.

Bonuses included, the overall compensation the Board paid employees was 14 percent higher than the median among its peers, according to the Twin Cities Pioneer Press.

More from TC-PP:

Michael Williams, executive director of the Wisconsin Investment Board, says in a written response to the audit that “experience shows that paying for performance has been a success.”

The bonuses are based on investment performance. The board ended 2013 beating one-, three- and five-year benchmarks. 

The bolded is important: the bonuses are performance based, and the Board raked in strong returns in 2013.

But the Board’s own data may raise doubts that the performance was strong enough to justify the amount of the bonuses.

Courtesy of Wisconsin State Investment Board
Courtesy of Wisconsin State Investment Board

(The Board operates two pension funds—the Core Fund and the Variable Fund. The Core Fund invests entirely in equities, while the Variable fund follows a more traditional asset allocation.)

As of April 30, the both funds’ calendar YTD returns have come in below their respective benchmarks.

But the bonuses in question were handed out based on 2013 performance. In fact, both funds were beating their benchmarks for one-year, five-year and 10-year returns as of March 31.

Still, those returns still fall short of what the Russell 3000 returned over the same periods.

The Russell 3000 index is considered a benchmark for the entire U.S. stock market, as the index encompasses the 3000 largest U.S.-traded stocks.

So, the Investment Board beat their benchmarks but not the broader index. Does that performance merit a big bonus?

That’s the $13.3 million dollar question.

Photo by Miran Rijavec aka Stan Dalone via Flickr CC License

Australia Looks to Cut Down Investment Fees After Scathing Report

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Pension funds are becoming increasingly allergic to fees eating into their returns, as CalPERS demonstrated this week when it announced a decision to cut hedge fund investments by 40 percent. But the United States isn’t the only country where this concern is taking hold. From the Financial Times:

Australia’s highly regarded private pension system faces sweeping reform following a sharply critical report into the fees charged by superannuation funds, which manage $1.8tn ($1.7tn) of assets.

Although Australia has the fourth largest private pensions savings pool in the world, the operating costs of the country’s superannuation funds are among the highest in the OECD, leaving scope for significant improvements in retirement incomes.

Fees should be cut by an average of 40 per cent (or 38 basis points) across the entire superannuation sector, according to an interim report released last week by the Murray inquiry, chaired by David Murray, a former chief executive of the Commonwealth Bank of Australia. This would deliver savings of about $7bn ($6.6bn) a year from annual running costs of $20bn ($18.8bn), boosting the average retirement payout by $40,000 ($37,574).

“There is an opportunity for innovation to deliver better outcomes for retirees and to better meet the needs of an ageing population,” said Mr Murray.

The report called for a “fundamental change” in the way the country manages its assets. It urged Australia to look at other parts of the world for ideas. From FT:

The report suggested Australia’s government should consider following the example of Chile and auction the right to manage default funds for all new pension accounts to the lowest cost provider. Fees charged by successful bidders in Chile have fallen 65 per cent since this approach was introduced in 2008.

The report also urged the government to consider introducing some form of compulsory deferred annuitisation that would pay out after the age of 85 – just as the UK is abandoning near-compulsory annuitisation.

The report said Australia was “unusual” in not encouraging citizens to convert their retirement savings into an income stream with longevity protection.

A “fundamental change” in the approach to asset management is required by Australia’s pension system, which focuses on maximising wealth on retirement rather than ensuring a sustainable income flow for life, said Mr Murray.

The panel that produced the report, called the Murray Inquiry, will send its official policy recommendations to the Australian government in November.