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U.S. Pension Funds Return 6.7 Percent; Sixth Straight Year of Gains

U.S. public pension funds saw median returns of 6.76 percent in 2014, according to Wilshire Associates. It marks the sixth consecutive year of positive investment performance for public funds in the U.S.

The country’s corporate pension plans returned 6.92 percent.

More from Bloomberg, via the Salt Lake Tribune:

U.S. public pensions reported median returns of 6.8 percent last year, the sixth year in a row of gains after the financial crisis, according to Wilshire Associates.

The gains, though, are less than the annual investment returns of 7.5 percent to 8 percent that many state and local governments count on to pay benefits for teachers, police and other employees. In the 10 years through Dec. 31, public pensions had a median return of 6.6 percent.

“A lot of the plans can’t be satisfied with a return of less than 7 percent,” said Bob Waid, a managing director at Santa Monica, California-based Wilshire, adding that a portfolio containing 60 percent U.S. stocks and 40 percent U.S. bonds returned 10 percent. “I’m a huge advocate of diversification, but you have to wonder sometimes when you see that the guy who did 60/40 beat you.”

While the Standard & Poor’s 500 Index of U.S. stocks returned 13.7 percent, public pensions were dragged down by international investments. Stagnation in Europe and a strong dollar led to losses of almost 4 percent on foreign stocks, according to Wilshire.

As Pension360 covered this week, the assets of U.S. public plans also rose to all-time highs.

Photo by Andreas Poike via Flickr CC License

Kentucky Pension CIO Talks About “Challenging Start” To Fiscal Year As Investments Decline

The first quarter of fiscal year 2015 ended last month, and investment performance at the Kentucky Retirement Systems came in below benchmarks for the period.

Including October, KRS investments are down 3 percent since July 1.

The system’s chief investment officer, David Peden, revealed the performance data at a board meeting on Tuesday.

Reported by the Lexington Herald-Leader:

Hedge funds and other alternative investments are the only assets currently gaining value for the Kentucky Retirement Systems, however controversial they might be otherwise.

For the first quarter of fiscal 2015, ending Sept. 30, its investments declined 1.41 percent overall, worse than the comparable benchmark, David Peden, chief investment officer for Kentucky Retirement Systems, or KRS, told the Public Pension Oversight Board on Tuesday.

“It’s been a challenging start to the year,” he said. “October hasn’t helped any. It’s actually a little worse — down by about 3 percent if you include October.”

After the meeting, Peden said KRS’ worst losses were in public equities — traditional stocks and bonds, especially those based in other countries. By contrast, he said, hedge funds were up 0.74 percent, private equities were up 1.49 percent and real estate was up 2.03 percent.

[…]

Experts consider KRS the weakest state retirement system in the country. It faces $17 billion in unfunded liabilities due largely to inadequate state payments for most of the past 15 years, starting during Gov. Paul Patton’s administration.

[…]

Jim Carroll, co-founder of the advocacy group Kentucky Government Retirees, told the board that KRS needed a massive infusion of cash, possibly from a pension bond that would require legislative approval. KRS now has so little money that even a booming stock market isn’t enough to prop it up, Carroll said.

“Over the last three years, the fund has exceeded its assumed rate of return and yet lost a staggering $952 million,” he said. “In other words, positive market performance has become disconnected from asset growth. The run-out date — the date when the fund would be depleted if there were no more assets coming in — has shrunk to two years and 10 months.”

KRS investments returned 15.5 percent in fiscal year 2013-14.

San Francisco Pension Backs Off Hedge Funds After Conflicts of Interest Surface

San Francisco Employees’ Retirement System (SFERS) was set to vote yesterday on whether the fund should allocate up to 15 percent of assets, or $3 billion, to hedge funds.

But the vote never happened, in part because of the objections of union members and retirees who showed up to the meeting. Recent reports of conflicts of interest surrounding the hedge fund investments probably didn’t help, either.

From the International Business Times:

San Francisco officials on Wednesday tabled a proposal to move up to 15 percent of the city’s $20 billion pension portfolio into hedge funds. The move came a day after International Business Times reported that the consultants advising the city on whether to invest in hedge funds currently operate a hedge fund based in the Cayman Islands.

The hedge fund proposal, spearheaded by the chief investment officer of the San Francisco Employees’ Retirement System, or SFERS, had been scheduled for action this week. If ultimately enacted, it could move up to $3 billion of retiree money from traditional stocks and bonds into hedge funds, potentially costing taxpayers $100 million a year in additional fees.

Pension beneficiaries who oppose the proposal spoke at Wednesday’s meeting of the SFERS board. They cited financial risks and the appearance of possible conflicts of interest in objecting to the hedge fund investments.

Prior to the meeting, the Service Employees International Union, which represents roughly 12,000 members who are eligible for SFERS benefits, asked city officials to have the hedge fund proposal evaluated by a consultant who has worked with boards that have opted against hedge funds.

David Sirota reported on the possible conflicts of interest earlier this week:

[SFERS is] drawing on the counsel of a company called Angeles Investment Advisors, one of a crop of consulting firms that has emerged across the country in recent years to aid municipalities in navigating the murky waters of managing money.

For two decades, Angeles has been employed by the San Francisco pension system to champion the best interests of city taxpayers and employees — the cops, firefighters and other municipal workers who depend on pension payments after their retirement. But the firm is concurrently playing another role that complicates its image as a disinterested guide: An International Business Times review of U.S. Securities and Exchange Commission documents has found that since 2010, Angeles has run a hedge fund based in the Cayman Islands that invests in other hedge funds.

In other words, the consultants that are supposed to be providing unbiased advice about whether San Francisco would be wise to entrust its money to the hedge fund industry are themselves hedge fund players.

SFERS says that, although the vote is tabled for now, it could be brought back at a later time.

This isn’t the first time the pension fund has delayed voting on hedge fund investments. In fact, it’s the third time: the board first delayed the vote in June. Then it delayed the vote again in August.