Executive Director's Corner
October 2016 Update
October 26, 2016 at 9:47 AM
Market Analysis and PRIT Fund Performance
Markets were strong in July following the significant drop after the surprise “Brexit” vote in late June, while August and September to date have been relatively calm. This follows a successful fiscal 2106 in which the PRIT Fund returned 2.3%, 84 basis points above benchmark. Importantly, the fiscal year performance was at the very top of our peer group; we know of no large pension fund peer that outperformed the PRIT Fund for the fiscal year and, according to the Wilshire TUCS Universe, for all funds greater than $1B, we ranked in the top 10% in the country.
Endowments fared far worse, with the vast majority reporting fiscal year losses. The asset allocation changes made over recent years to reduce equity exposure were timely and they successfully insulated us from market volatility, and we remain mindful that economic indicators still confirm a slow, steady and unremarkable rate of economic growth. For now, we believe that our portfolio positioning is appropriate for the current economic outlook.
Economic data points to a recent weakening. For example, U.S. manufacturing contracted in August for the first time in six months as the ISM factory index fell 3.2 points to 49.4. (A reading greater than 50 generally points to an expansion.) The services industry, which comprises 90% of the U.S. economy, grew at the slowest pace in six years. Sales of previously owned homes, retail sales, and auto sales slumped in August, while U.S. employers added only 151,000 jobs in August, below estimates of 180,000, and well below June and July levels of 271,000 and 275,000, respectively. These recent reports suggest a lackluster estimated GDP growth of approximately 2.3% in the quarter, and led the Federal Reserve Bank, at its September meeting, to hold rates steady at their historically low levels.
The PRIT fund was up strongly in July and up slightly in August. As of August 31, 2016, the PRIT Fund net asset value stood at $62.7 billion. The PRIT Fund’s trailing 1-, 3-, 5-, and 10-year returns remain strong both on an absolute and on a relative basis.
- For the one-year ended August 31, 2016 the PRIT Fund was up 8.7%, outperforming the total core benchmark of 8.4% by 37 basis points.
- This performance equates to an investment gain of $5.2 billion
- This outperformance equates to $220 million of value above the benchmark return.
- Net total outflows to pay benefits for the one-year ended August 31, 2016 were approximately $1.5 billion
- Five of the seven major asset classes outperformed their respective benchmarks.
PRIM hiring efforts to fill our open positions are well-underway, with each of our positions attracting a large number of highly-qualified and diverse applicants. We are very close to filling the open positions on our public markets, private equity and client services teams, and we hope to fill the vacant Director of Risk Management position by the end of the calendar year.
Please join me in congratulating two members of the PRIM staff who have recently passed the three-year CFA exams. Tim Schlitzer, Senior Investment Officer, Director of Real Estate and Timberland, passed the CFA Level III exam and is now a fully recognized CFA charter holder. Morgan Burns, CPA, on our accounting team, also passed the CFA Level III exam and is still fulfilling the requisite four-year work experience requirement.