Fiddich Review Centre
Alternative Investment

Reversal of turbocharged public markets sinks pension fund fiscal-year returns

Among the pension funds that have released their fiscal-year return information, those with more diversification away from public equities and fixed income have performed less poorly.

Hawaii Public Employees’ Retirement System, Honolulu, chalked up a gross return of 3.7% for the fiscal year ended June 30, the highest tracked thus far and one of only seven public pension funds that have reported a positive return for the period. The pension fund eschews traditional asset classes in favor of a risk-based approach that splits its total allocation into targets of 67.5% to broad growth and 32.5% to diversifying strategies. The broad growth asset class is broken down into public growth, private growth and real assets, and diversifying strategies is broken down into liquid defensive, liquid diversifying and illiquid diversifying portfolios.

The pension fund benefited from strong returns by private growth and real assets, which returned a gross 29.6% and 15.4%, respectively, for the most recent fiscal year. The combined allocation to those subasset classes was 33.4% of the total fund as of June 30.

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

At the other end of the spectrum, the Oklahoma Public Employees’ Retirement System, Oklahoma City, had the lowest reported return at a gross -14.5%.

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

Uniquely, this past fiscal year was very much a tale of two halves. As Mr. Foresti put it, all the stimulus that had driven the exceptional returns of the past year had boosted valuations, and the plummeting returns during the first half of 2022 represented a return to a more reasonable view of valuations rather than being connected to a very pessimistic view on fundamentals, he said.

For the six months ended Dec. 31, the Russell 3000 index returned 9.2% and for the six months ended June 30, the index returned -21.1%, while the Bloomberg U.S. Aggregate Bond index returned 0.1% for the six months ended Dec. 31 and -10.3% for the six months ended June 30.

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