…Public defined-benefit (DB) pensions leverage the advantages of pooled funds, pooled risk, a long investment horizon, and professional money management to reduce the cost of providing retirement benefits to employees over the long term. Given recent economic shocks and their impact on the status of pension funds, there is increased attention on public sector pension investment management practices. Debate about these practices can be better informed with insights into how the public pension investment process works—a process that is not widely understood…
The following are key highlights:
1. Public pension funds have a clear division of labor for making investment-related decisions. Fiduciary standards apply to each key role in the investment process.
“We’re very proud of these returns for our members. But the ups-and-downs we saw in our investment returns during 2012 are a perfect example of why TRS always places more emphasis on long-term investment results,” said TRS Executive Director Dick Ingram. “Our members are counting on us to deliver for them for decades and that is the true measure of our success.” The System’s 30-year investment return at the end of fiscal year 2012 was 9.6 percent against the 8.5 percent long-term rate-of-return target in place at the end of June. The TRS Board of Trustees re-set its long-term target at 8 percent in September, 2012.
TRS recorded strong returns in all seven of its major investment classes in the 12 months ending on December 31, 2012, led by a 17.02 percent return in international stocks. Investments in U. S. stocks posted a 16.3 percent return and private equity investments returned 16.22 percent. Investments in fixed income recorded a return of 13.67 percent while real return investments returned 9.92 percent; real estate investments saw an 8.4 percent return; and absolute return investments posted an 8.15 percent gain.
The volatility of the world economy and investment markets can be tracked through TRS investment returns. Investment income lagged during the last three months of fiscal year 2012, resulting in the 0.76 percent rate of return for the 12 months in that fiscal year. However, the portfolio demonstrated its ability to participate in a rebounding market during the second half of 2012. Here are the 12-month investment returns for calendar year 2012 by asset class:
Investment Category Assets Allocated 12-month Return Rate on 12/31/12:
International Equity $ 7.94 billion +17.02%, Domestic Equity $ 8.54 billion +16.34%, Private Equity $ 4.35 billion +16.22%, Fixed Income $ 6.42 billion +13.67%, Real Return $ 3.76 billion + 9.92%, Real Estate $ 4.66 billion + 8.40%, Absolute Return $ 2.02 billion + 8.15%, Short Term Investments $ 0.46 billion + 4.68%: TOTAL $38.16 billion +13.92%
NOTE: All returns are calculated net of investment fees. Total rate of return is based on the System’s asset allocation and performance of the underlying asset classes.