Public pension funds report strong investment returns for year ended June 30

Strong equity gains helped boost investment returns for pension plans in Louisiana, California, Oklahoma and Canada in fiscal year 2011, while some experienced additional returns through private equity and real estate positions, according to information released by the plans on Friday.

Louisiana State Employees' Retirement System, Baton Rouge, returned a record 24.3% for the 12 months ended June 30.

The $9.3 billion system returned 16.1% a year earlier, according to a news release. Exact breakdowns by asset class were not available.

Another record was set by the San Bernardino County (Calif.) Employees' Retirement Association, which earned a net return of 22.61% for its fiscal year ended June 30, Nicole Dailey, spokeswoman for the $6.1 billion association, confirmed in an e-mail. It was the highest for a fiscal year in the association's 45-year history.

The fund's Sharpe ratio was 5.51, above the association's policy benchmark of 2.55. This means that the fund had a much higher rate of return than expected for each incremental unit of risk taken during the year, according to an association news release.

The $6.8 billion Oklahoma Public Employees Retirement System and the $247.7 million Oklahoma Uniform Retirement System for Justices and Judges, both in Oklahoma City, returned 21.23% and 21.3%, respectively, for the fiscal year ended June 30.

Tom Spencer, executive director for OPERS, which also oversees the judges retirement system, said in a telephone interview that the two plans were rewarded for their large equity positions.

OPERS has 23.75% of its portfolio in indexed domestic equities, 16.25% in active domestic equities, 16% in international indexed equities and 8% active international equities. The system has 36% in active fixed income.

The judges system has 64% allocated to indexed equities and 36% to active fixed income, Mr. Spencer said.

In Canada, the C$58 billion (US$61 billion) Public Sector Pension Investment Board, Montreal, returned 14.5% for its fiscal year ended March 31, according to a PSP Investment Board news release.

“The latest results reflect solid performances and contributions from every part of the organization and point to the success of the diversification strategy we began implementing in 2004, with the introduction of private market asset classes such as real estate, private equity and infrastructure,” Gordon J. Fyfe, president and CEO of PSP Investment Board, said in the news release. “Our public market equity portfolios also recorded substantial gains, adding to the strong performance of the previous year.”

The system's asset allocation as of March 31 was 56.5% public market equities; 20.7% nominal fixed income and world inflation-linked bonds; 9.6% private equity; 9.1% real estate; and 4.1% infrastructure, according to the news release. PSPIB spokesman Mark Boutet could not be reached for comment.

Survey:Public Pensions Recovering and Adequately Funded

A member funding survey for the National Conference on Public Employee Retirement Systems (NCPERS) shows public pension funds are experiencing a robust recovery from the historic market downturn of 2008-2009 – reporting strong investment returns, growing assets and more than adequate funding levels to meet their obligations.  The survey is one of the most comprehensive study of public pensions. In all, 216 public pension funds were surveyed, the vast majority – 83 percent – were local pension funds, while 17 percent were state pension funds.

Among the survey's key findings:

• Despite weak short-term investment experience in 2008 and 2009, the long-term investment discipline of fund managers has produced an average one-year return of 13.5 percent, based on the most recently reported data. Funds participating in the study reported a 20-year average return of 8.2 percent.
• Investment returns are the single most significant source of plan funding, comprising about 66 percent of fund revenue. Individual plan members are a significant source of plan funding, contributing 10 percent of plan revenue. Employer contributions comprise only 24 percent of plan revenue.
• The vast majority of plans are managed responsibly and maintain strong funding levels. On average, public pension plans are 75.7 percent funded and continue to work toward full funding. According to its February 2011 report Enhancing the Analysis of U.S. State and Local Government Pension Obligations, Fitch Ratings considers a funded ratio of 70 percent or above to be adequate.