Executive Director's Corner

February 2017 Update

February 15, 2017 at 12:53 PM

Markets Performance Summary
Since early November, equity markets have been strong while bonds, particularly long duration bonds, have been weak. Markets continue to be focused on several expansionary aspects of the Trump policy platform: Tax reform, fiscal stimulus, infrastructure spending and deregulation are expected to boost growth in the near term, and combined with mostly positive current economic data, have driven equity markets and bond yields higher.
More recently, we have seen some glimpses of policies which may reduce growth longer term. In recent weeks we have seen aggressive new policies on immigration, tariffs and trade. President Trump has officially abandoned the Trans-Pacific Partnership (TPP) global trade agreement and has indicated that the North American Free Trade Agreement (NAFTA) will be renegotiated.
We still believe there are many risks to the economy longer term, and staff and the Investment Committee are recommending today modest changes to the PRIT Fund asset allocation targets which we believe will enable our portfolio to perform well in all environments. Those changes revolve around five key themes:

  1. Maintain Global Equity exposure of 40%, but evaluate alternative equity hedging strategies.
  2. Reposition Core Fixed Income portfolio to mitigate higher inflation risk.
  3. Restructure Value-Added Fixed Income portfolio to introduce a new sub-asset class called Other Credit Opportunities.
  4. Increase Private Equity allocation.
  5. Combine Hedge Funds and Portfolio Completion Strategies (PCS) into a single allocation to focus on diversifying assets uncorrelated to equities.

PRIT Fund Performance Summary
As of December 31, 2016 the PRIT Fund net asset value stood at $62.7 billion.
For the one-year ended December 31, 2016, the PRIT Fund was up 8.0%, underperforming the total core benchmark of 8.9% by 83 basis points.

  • This performance equates to an investment gain of $4.8 billion
  • This underperformance equates to $494 million of value below the benchmark return
  • Four of the seven major asset classes outperformed their respective benchmarks
  • Net total outflows to pay benefits for the one-year ended December 31, 2016 were approximately $1.4 billion

For the quarter ended December 31, 2016, the PRIT Fund was down -0.2%, underperforming the total core benchmark of 0.1% by 32 basis points.

  • This performance equates to an investment loss of $126 million over the quarter
  • This underperformance equates to $202 million of value below the benchmark return
  • Four of the seven major asset classes outperformed their respective benchmarks

Organizational Update
In December, PRIM closed on its first ever direct real estate investment. The $112 million investment is 21 acres of land and a long-term 60 plus year ground lease in Santa Clara, California. The land is leased to the largest real estate developer in California and there are three building on the land. PRIM expects to save $11 million in investment management fees.
Christina Satcher, Accounting Assistant on the finance team, studied for and passed the CFA Investment Foundations exam. The CFA Investment Foundations program provides a comprehensive understanding of finance, ethics and the investment industry. Christina joins more than 20 PRIM colleagues who have similarly studied for and passed the Investment Foundations exam.

 


Tags: PRIT Updates
Category: Updates