Reversal in supercharged public markets drives pension fund returns down for the year

Among the pension funds that have published their information on returns for the year, those that are more diversified than public equities and fixed income securities have performed less poorly.

Hawaii Public Employees’ Retirement System, Honolulu, posted a gross return of 3.7% for the year ended June 30, the highest on record and one of seven public pension funds to record a return positive for the period. The pension fund eschews traditional asset classes in favor of a risk-based approach that divides its total allocation into targets of 67.5% for overall growth and 32.5% for diversification strategies. The broad growth asset class breaks down into public growth, private growth, and real assets, and diversification strategies break down into liquid, liquid diversified, and illiquid diversified defensive portfolios.

The pension fund benefited from strong returns from private growth and real assets, which returned 29.6% and 15.4% gross respectively for the last fiscal year. The combined allocation to these sub-asset classes was 33.4% of the total fund as of June 30.

Maine Public Employees Retirement System, Augusta, posted a preliminary net return of 3.3%, the second highest return. As of June 30, approximately 53% of its total assets were allocated to alternative investments, and its public market exposure in domestic and international equities and fixed income securities was limited to a total of just under 39% of plan assets. By asset class, alternative allocations were 20.7% private equity, 11% infrastructure, 10.1% real estate, 7.2% risk diversification (including hedge funds), 6.8% alternative credit and 4.9% natural resources.

At the other end of the spectrum, Oklahoma’s Public Employees Retirement System in Oklahoma City had the lowest return with a gross rate of -14.5%.

As of June 30, the system’s total allocation to domestic and international equities and fixed income securities represented 99.6% of assets.

Uniquely, the last fiscal year was largely a story in two halves. As Mr. Foresti said, all of the stimulus that had driven the bumper returns of the past year had pushed valuations up, and the fall in yields in the first half of 2022 represented a return to a more reasonable valuations rather than being tied to a very pessimistic view of fundamentals, he says.

For the six months ended December 31, the Russell 3000 Index returned 9.2% and for the six months ended June 30, the index returned -21.1%, while the he Bloomberg US Aggregate Bond Index returned 0.1% for the six months ended December 31. and -10.3% for the six months ended June 30.

Dolores W. Simon