July 21, 2015

Md. pension fund earns 2.68%, missing annual target

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Wall Street stock exchange (by zonnabar, flickr)

Photo above: The New York Stock Exchange by zonnabar with Flickr Creative Commons License

By Len Lazarick

Len@MarylandReporter.com

Maryland’s $45.8 billion pension fund for state employees and teachers earned 2.68% for the past fiscal year, almost 5 percentage points below its target of 7.65%, but better than benchmark returns for its various asset classes, its Board of Trustees was told Tuesday.

“While earnings for this one year fell short of our expected rate of return, the board continues to focus on long-term performance,” State Treasurer Nancy Kopp, board chair of the Maryland State Retirement and Pension, said in a statement.

“Over the last five years our average return has been close to 9.4%, a much more relevant measure of the overall health of our investment portfolio. Although this has been a challenging year for most institutional investors, the wisdom of the board’s decision some time ago to diversify its portfolio has been borne out by its long term positive returns.”

The 10-year return was 5.77%, which includes losses in the Great Recession, according to Michael Golden, spokesman for the pension system. Twenty and 25-year returns were not available.

Robert Burd, acting chief investment officer until a newly hired chief is on board, said, “While absolute performance did not meet the actuarial target for the fiscal year, we are very pleased with the performance of our active management program, which continues to add significant value over the overall plan benchmark. For the fiscal year, active management added roughly $800 million in excess of the benchmark.”

Asset Allocation Return Benchmark Difference
Public Equity 37.63% 3.65% 0.60% 3.06%
Private Equity 8.02% 13.17% 7.62% 5.54%
Fixed Income 12.94% 1.96% 1.93% 0.03%
Credit 9.73% -0.81% -3.05% 2.24%
Real Return 13.17% -5.18% -6.61% 1.43%
Real Estate 7.36% 12.12% 10.40% 1.71%
Absolute Return 10.65% 0.74% 2.63% -1.90%
Cash 0.49% 2.10% 0.02% 2.08%
Total 100.00% 2.68% 0.86% 1.82%

Failure to meet the long term investment target of 7.65%, which is will be reduced to 7.55% in two years, would require state and local taxpayers to put more into the fund to meet the promises made to state employees and public school teachers.

Critics of the pension system have consistently disapproved of its investment performance compared to other public pension funds of similar size and the amount of money its pays to outside managers that handle such investments as private equity.

 

Former correctional officer added to board

Former correctional officer Sheila Hill was elected to the 15-member retirement system board in an election held this spring. Hill had previously served on the board as a representative of active Employees’ System members for nearly 10 years beginning in 2004, but could no longer serve after her retirement.

As a retiree, she was eligible to run for the position being vacated by John W. Douglass, who did not to run for reelection as the retirees’ representative.

Hill received 6,702 votes (75%). Her opponent Linda Day received 2,209 votes (25%).
Hill was endorsed by the American Federation of State County and Municipal Employees (Council 3, Council 67, Local 2250 and Retiree Chapter 1) and the State Law Enforcement Officers Labor Alliance, a union spokesman said.

  • jpblic

    The index500 returned near the bench mark of over7.4%. What is wrong with the investors that we are paying for the pension fund?

  • Dale McNamee

    Why are the taxpayers responsible, via increased taxes, for promises made to state employees and public school teachers ?

    Also, the article shows the type of economically ignorant persons who run the pension system…

    A former correctional officer is named to the board ? What investment experience does she bring ?

    This board should be dissolved and everyone involved ( past and present ) arrested and tried for fiscal malfeasance like any bank, private financial advisor, private pension board mrmbers, or corporations are…

    • Edward Jones

      Dale, taxpayers have ALWAYS been ultimately on the hook for government run retirement. I believe this is part of what they usually call unfunded mandates.

      • Dale McNamee

        I know…

        But, what I was protesting was the fact that the Maryland taxpayer is being held responsible for the investment decisions made by unaccountable bureaucrats and highly paid “advisors “…

        As for the “advisors”… Turn on the radio, there are local financial advisors who will do better for the plan… Also, the fund has been raided and underfunded over the years…

        These folks should make up the loss/poor performance and return… They are responsible for the pension plan !

        • Edward Jones

          Agree, but I’d say just put the money in the Vanguard 500index fund and fire all the “advisors”, well except me, I’ll take .005%:)

          • Dale McNamee

            I had the same idea regarding using an index fund for the pension fund…

            Those funds have done well over the years…

            Just start funding the pension fund properly, return the money taken from it, and stop raiding it…

            But, the dreams of the radical Progressives in Legislature won’t allow that to happen…

  • Edward Jones

    I want to know where they got 2.10% on CASH!!!! Vanguard Prime Money Market only returned 0.03% Something smells fishy here.

  • dwb1

    This is my (not really) surprised face 😐

    The party had to end sometime. Glad we skipped all those contributions (sarcasm).

    Maybe soon we can get down to the business of restructuring pension obligations into sustainable promises.

    • dwb1

      The thing to be cautious of is that this is the point where the board will be tempted to reach for return and take on excessive risk to meet the (overly optimistic) return target. We are already seeing it in other places where they are taking strategies with complex sounding names that effectively increase their equity allocation. Unfortunately, given the lack of transparency and accountability on this board, we likely won’t hear about it until it’s too late.