Tag: S&P 500

New Orleans Pension Considers Index Investing After 2014 Performance Lags

Graph With Stacks Of Coins

The New Orleans Municipal Employees Retirement System returned less than 5 percent in 2014, a number that is pushing some board members – including the city’s finance director – to consider a more passive investment strategy.

Trustee and city finance director Norman Foster argued this week that the fund should be investing in funds that passively follow indices like the S&P 500, which saw double digit returns in 2014.

From NOLA.com:

Several board members expressed some frustration with the fund’s investment performance, none more than Norman Foster, the city’s finance director.

Foster argued that the city would have been better served by investing in index funds, passive investment vehicles that track the market and eliminate costly management fees. “I’ve made the case for passive investment, and I’ll be making it more and more,” he said.

[…]

Some of the performance lag can be attributed to the fund’s asset mix. Like many pension systems, the retirement system invests heavily in bonds, a strategy that minimizes risk but also limits returns during market booms.

Foster pointed out, however, that even when the asset mix is taken into account, the fund’s performance fell short of index benchmarks by nearly 3 percent, which means the managers failed to beat the market, despite collecting handsome fees.

Ian Jones, who advises the retirement system on investment issues, warned against dumping its asset managers based on one year’s worth of data.

The fund assumes a 7.5 percent annual return.

Over the past seven years, the fund’s returns have averaged 4.21 percent annually.

 

Photo by www.SeniorLiving.Org

Report: New Jersey Pension Investments Trailed S&P 500 For Seven of Last Eight Years

New Jersey's investment returns vs. the S&P 500 CREDIT: IB Times
New Jersey’s investment returns vs. the S&P 500
CREDIT: IB Times

Last week, journalist David Sirota reported on the New Jersey pension system and its drastic shift towards hedge fund investments under Chris Christie.

This week, Sirota has analyzed the state’s financial records. His finding: despite the increased allocation toward hedge funds and other alternatives, the pension system has mostly underperformed relative to the broader market.

Sirota writes:

In seven of the eight years since the state began shifting pension funds into so-called alternative investments, returns have fallen well short of the broader stock market, an analysis of state financial records shows. In those seven years, New Jersey’s alternative investment portfolio has produced gains of just more than half of the S&P 500, the widely watched index seen as a proxy for shares of large corporations.

[…]

The below-market results from the state’s $20 billion alternative investment portfolio belie repeated assurances from New Jersey officials who said the investments would overperform the stock market. Instead, the results buttress arguments by investors like Warren Buffett and some local lawmakers, who assert that pension money should be invested in stock index funds rather than hedge funds, private equity, venture capital, real estate and other alternative investments.

Christie has responded to the fund’s under-performance by claiming that, although it has under-performed the broader market, it has beaten the fund’s internal projections.