Executive Director's Corner
June 2016 Update
June 08, 2016 at 10:07 AM
Markets and PRIT Fund Performance
Markets have stabilized since mid-February as fears of an economic slowdown have not been confirmed by recent data. Moreover, recent economic data has been consistent with a modest increase in U.S. GDP growth forecast for the second quarter, unlike the marginal, fractional growth of 0.8% (revised up from 0.5%) reported in the first quarter.
While April economic reports were encouraging, we are looking for continued confirmation of improving conditions here and abroad before we become more constructive on the markets. And it is our current belief that the prospect of Federal Reserve rate hikes in the coming months will likely keep any large equity market rallies in check.
Market returns for the first quarter were modest, with global equities up 0.2% and diversified bonds up 3.0%. A 60%/40% mix of global equities and bonds, a measure commonly used to compare pension fund performance, was up 1.3%, while the PRIT fund was up 1.9%. Private equity, private debt, private real estate and timberland were strong performers in the quarter, but core fixed income, including our allocation to long-duration Treasury securities, was the strongest-performing asset class for the quarter and performed in line with expectations, consistent with the designed purpose of providing “portfolio insurance” in turbulent equity markets. The strong first quarter results were largely a result of the bold and timely asset allocation changes we have made over the past several years to prepare us for these volatile markets. As a reminder, we have reduced our global equities allocation to a target of 40% from 49%, added long-duration Treasury securities, added diversifying assets in Portfolio Completion Strategies and maintained our commitment to alternatives such as private equity, private debt, private real estate and timberland.
As of April 30, 2016, the PRIT Fund net asset value stood at $60.4 billion. The PRIT Fund’s trailing 1 year performance was as follows:
- For the one-year ended April 30, 2016, the PRIT Fund was up 0.2%, outperforming the total core benchmark of -1.5% by 164 basis points. This performance equates to an investment gain of $100 million
- This outperformance equates to $1.02 billion of value above the benchmark return.
- Net total outflows to pay benefits for the one-year ended April 30, 2016, were approximately $1.7 billion.
- Four of the seven major asset classes outperformed their benchmarks.
I am pleased to welcome two new full-time employees and one new summer intern to PRIM. We have been very fortunate to benefit from large pools of highly qualified and eager applicants for every open position at PRIM.
Christina Macarelli joined the Real Estate and Timberland team on May 9 as an Investment Officer, reporting to Tim Schlitzer. Christina joins us from Colony Capital, where she spent 5 years as a real estate asset manager. Christina earned a Master’s degree in Real Estate development from M.I.T. and a Bachelor’s of Science degree in Business Administration from Central Michigan University.
Bill Li joined the Hedge Fund and Portfolio Completion Strategies team on May 16 as an Investment Analyst, reporting to Eric Neirenberg. Bill joins us from CoStar, where he was a member of the debt research team. Bill earned a Master’s degree in Economics and Finance from Brandeis University, and a Bachelor’s degree from Dongbei University in China. Bill was also an exchange scholar at Cologne University of Applied Science in Cologne, Germany.
Finally, Andy Lu joined the Hedge Funds and Portfolio Completion Strategies team on May 16 Eric as a summer intern. Andy is currently completing his Ph.D. in Economics at SUNY Buffalo. Andy completed his undergraduate work in Shanghai in finance and economics, and has done some very interesting analysis of the labor markets, which is the subject of his dissertation.