Executive Director's Corner

February 2016 Update

February 02, 2016 at 12:23 PM

We have long anticipated a transition to a lower-return environment after a period of strong returns -- and it's clear we've entered such a scenario.

The PRIT Fund returned 8.2% in calendar year 2014, 230 basis points above benchmark; 15.2% in calendar 2013, 264 basis points above benchmark; and 13.9% in calendar 2012, 84 basis points above benchmark.

Market returns in calendar year 2015 were generally weak as the slowdown in China led to concerns of slowing growth worldwide. For the year, U.S. equities were up 1.4%, but returns would have been negative if it weren’t for dividends. The dividend yield on the S&P 500 was approximately 2.1%. Developed international equities were down 0.8% and emerging markets equities were down 14.9%. Diversified fixed income securities were up 0.5% for calendar 2015, while long-duration Treasuries were down 3.7%.

The PRIT Fund was up 1.1% for calendar 2015, 133 basis points above its benchmark, which was down 0.23 for the year. We are pleased with the recent performance of the PRIT Fund during this recent market volatility. Asset allocation changes made over the past five years to reduce the Fund’s exposure to risk prepared us well for these turbulent markets. These changes included reducing the Global Equity target allocation to 40 percent from 49%, adding long-duration Treasury bonds (the #1 performing public markets asset class in FY 2015); and adding low--volatility, diversifying Portfolio Completion Strategies. Additionally, our continued exposure to alternatives such as Private Equity, Real Estate and Timberland added to the year’s positive returns.

We believe the current asset allocation will serve us well in 2016 and beyond, and accordingly the Investment Committee, at its January 2016 meeting, no changes to the current asset allocation targets. This was consistent with the recommendation from the investment staff and our consultant.

As of December 31, 2015, the PRIT Fund net asset value stood at $59.6 billion. The PRIT Fund’s trailing 3-, 5-, and 10-year returns remain strong both on an absolute and on a relative basis:

• For the one-year ended December 31, 2015, the PRIT Fund was up 1.1%, outperforming the total core benchmark of -0.2% by 133 basis points.
• This performance equates to an investment gain of $666 million
• This out-performance equates to $805 million of value above the benchmark return.
• Net total outflows to pay benefits for the one-year ended December 31, 2015, were approximately $1.5 billion
• Five of the seven major asset classes outperformed their benchmarks.

This is the time of year when I'm required by PRIM's governing documents to approve the plans for each division and asset class. That process is complete, and I've shared the latest plans with the PRIM board for comment.

A few highlights:

PRIM staff is developing a "trigger-based" framework for tactical investment decisions.

We're continuing our efforts to build a diverse staff and help members of the PRIM team grow professionally.

Our hedge fund team is moving forward wiht plans to place more assets in managed accounts -- a change that provides greater control and transparency.

Our risk management team is working on a number of fronts, including the creation of a traffic-light system that will help us spot trouble more quickly than in the past.

And in real estate, the PRIM group is working on, among other things, more direct acqusition of assets.

Finally, I am pleased to report that PRIM and our employees continue to be recognized nationally for the strength and innovation of our investment program.

In December 2015, the Private Equity Growth Council reported that PRIM regained its number-one ranking in the nation among 155 U.S. public pension funds for private equity long-term performance. This follows the 2013 and 2014 rankings in which PRIM was ranked first and second, respectively.

On December 2, 2015, PRIM was honored twice at the Asset International – CIO Magazine award ceremony at the New York Public Library. I was fortunate enough to be recognized in the public pension fund category for excellence in innovation. Sarah Samuels, PRIM’s Deputy Chief Investment Officer, was recognized in the “next generation” category for innovation excellence and leadership. Importantly, PRIM was the only plan among more than two dozen to receive top honors. Thank you to the Board, our Committee members, and of course, the entire PRIM staff for your support, hard work and dedication. These awards belong to all of us.

Category: Updates