Powered by gains in its stock portfolio, the state pension fund reported a 2.7 percent investment return in the second quarter and a 10.6 percent increase for the fiscal year.
The gains boosted the total pension fund’s assets to $93.9 billion as of June 30, its highest valuation ever, up from $92.2 billion at the end of March, according to data issued Thursday by the office of State Treasurer Dale Folwell.
The gains in the stock portfolio come as Folwell, who has final say on the fund’s investments, has been dialing back investments in stocks in conjunction with his aggressive fee-cutting efforts. Billions of dollars previously invested in stocks have been shifted to investment-grade bonds and cash – for example, investing in things such as short-term U.S. Treasury bills, or T-bills.
More than 900,000 current and retired teachers, state employees, firefighters, police officers and other public employees rely on the pension fund for retirement benefits.
Investments in stocks, which represent the pension fund’s largest single investment category, gained 4.5 percent in the quarter and 19 percent for the fiscal year that ended June 30.
Those gains were by far the best of any of the pension fund’s asset classes. Ranking No. 2 was private equity, which gained 2.6 percent for the quarter and 9.5 percent during the fiscal year. Return rates are calculated after fees and expenses are deducted.
Under Folwell’s leadership the pension fund has reduced fees by more than $60 million on an annualized basis – that is, those savings aren’t immediate but will be realized over a year’s time. Those savings include terminating outside money managers that were investing in stocks as well as renegotiating contracts.
Consequently, Folwell, a Republican who took office in January, already has easily exceeded his campaign promise to slash fees by $100 million during his four-year term.
Folwell said during a recent interview that when he took office the pension fund had too much invested in stocks and that the fund had lost billions – at least on paper – from its stock investments during the recession. He also said that the pension fund’s needs for cash have been underestimated.
But critics say the pension fund’s potential returns are being reduced because stocks typically outperform bonds and cash.
The pension fund’s investments in stocks amounted to 37.6 percent of the total portfolio as of June 30, down from 43.2 percent at the end of December.
“In this low interest rate environment, we are pleased our funds did so well, while at the same time, the pension fund as a whole had less exposure to risk,” Folwell said in a prepared statement, referring to the lower volatility of investments in bonds and cash compared with stocks. “I want to thank those responsible for this great performance but I am cautious about returns going forward.”
Among the pension fund’s other investment returns, for the quarter and for the fiscal year: non-core real estate, 2.6 percent and 10.8 percent; opportunistic fixed income, 1.2 percent and 10.9 percent; investment-grade fixed income, 1.7 percent and a loss of three-tenths of a percent; cash, three-tenths of a percent and 1 percent; inflation sensitive, seven-tenths of a percent and 11.1 percent; and core real estate, 1.6 percent and 8.2 percent.