Second Quarter 2019 Update

August 29, 2019

Market Performance Summary
During Fiscal Year 2019 (FY 2019), the PRIT Fund increased by approximately $4.1 billion to $74.8 billion despite a challenging market marked by extreme volatility, heightened geopolitical tensions, and deteriorating global economic conditions. The year included sharp sell-offs in equity markets followed by historic snapbacks. For example, the month of December 2018 was the worst month since 1931 with the S&P 500 falling more than 6%. The December quarter was the weakest in many years with the S&P 500 falling nearly 14% and the NASDAQ falling more than 17%. Global markets were even weaker. But that weakness did not last long. In the March 2019 quarter, markets posted the strongest snapback in more than 20 years with the S&P 500 gaining more than 13% and, for the first half of the calendar year through June, the S&P 500 was up more than 17% – the best first half-year since 1997. The month of June alone, with the S&P 500 up nearly 7%, was the best June on record since 1955.

This environment of extreme swings is difficult for money managers and, for a fund the size of PRIT, it makes tracking our target asset allocation very difficult. The PRIT Fund’s trailing 3-, 5-, and 10-year returns remain strong on both a relative and absolute basis, as was the FY 2019 return, but it was slightly weaker and lagged the benchmark slightly (by less than half of a percentage point). More than half of the fiscal year slight underperformance was due to the extreme volatility of the markets and the fact that our actual asset allocation diverged from the target allocation on which the benchmark is derived. The target allocation is comprised of an increasing allocation of high performing, illiquid alternative investments such as Private Equity and Private Real Estate. It takes some time to identify worthy managers, funds and investments in those asset classes, and on average for the fiscal year, we were underweight (relative to our target and our benchmark) those high performing asset classes, and actually overweight modestly-performing Global Equities. So, the real news here is in fact very good news, namely that our asset allocation changes were effective and increased our targets in asset classes that are performing well – it’s just taking a while to move the actual assets to these new targets. Additionally, some specific asset classes struggled to keep up with their benchmarks in the volatile environment, but we understand the causes, and our investment staff has already taken necessary steps to address these underperforming areas.

PRIT Fund Performance Summary

  • For the one-year as of June 30, 2019, the PRIT Fund was up 6.1% (5.7% net), underperforming the total core benchmark of 6.6% by 45 basis points (90 bps, net).
  • This performance equates to an investment gain of $4.4 billion ($4.1B, net of fees).
  • Net total outflows to pay benefits for the one-year ended June 30, 2019 were approximately $1.0 billion.

Fiscal Year Highlights Include:
For the second consecutive year, PRIM Private Equity ranked #1 in private equity returns among 163 U.S. public pension funds based on 10-year performance.  PRIM is the only fund that has been in the Top 5 of all private equity portfolios in every year the American Investment Council has performed the study – including #1 rankings in 2019, 2018, 2015 and 2013.

For the 14th consecutive year, PRIM was awarded the Government Finance Officer Association’s Certificate of Achievement for Excellence in Financial Reporting for the completeness and timeliness of our Comprehensive Annual Financial Report.

The PRIM Board was nominated for the “Plan of the Year” award for an unprecedented fourth year in a row by Institutional Investor magazine.

PRIM has been recognized for adopting the CFA Institute’s Global Investment Performance Standards (GIPS) of integrity and transparency. PRIM is now one of only a handful of large public pension plans to comply with GIPS, the worldwide performance reporting standard.

Bill Li was inducted into the EQDerivatives Investing Hall of Fame, which recognizes individuals who have led the line in volatility and alternative risk premia thought leadership (May 2019).

For the second year in a row, Eric Nierenberg has been listed on Institutional Investor’s “Most Wanted Allocators” list.  This is the global “Top 50” list of allocators deemed to be most coveted for potential future chief investment officer roles.

New PRIM Employees
Marliese Lawson joined PRIM in July as the ED/CIO’s administrative assistant.  Prior to joining PRIM, Marliese worked at Health Net Federal Services (HNFS), a global health care services company, as an Executive Assistant.   Prior to that she was an Executive Assistant at the accounting firm, Perry-Smith, LLP.  Marliese is a graduate of Gordon College, with a degree in English Literature, and from Salem State University, with a Master’s degree in English.

Sarah Zatoonian joined the Private Equity team in June as an Investment Analyst.  Sarah was most recently at the College of the Holy Cross Investment Office where she was a member of a four-person team responsible for the oversight and management of the College’s long-term investment portfolios for the Endowment and Pension.  Sarah holds dual Bachelor degrees in Economics and Classics, both from the College of the Holy Cross.

Jay Leu joined PRIM in July as Director of Risk Management.  Jay brings over 30 years of investment industry experience and was most recently Director of Risk Management at Aesir Capital Management, a long/short credit hedge fund. Prior to that, Jay was the lead portfolio manager and business unit head of Structured U.S. Equity at Lee Munder Capital Group. He held the Chief Investment Officer position at Independence Investment Associates (which Lee Munder acquired) and at Pacific Capital Fixed Income Advisor.  Jay began his career at State Street Global Advisors as both a Domestic and Global Fixed Income portfolio manager. Jay is also currently an adjunct professor of finance at Brandeis University’s International Business School where he teaches International Portfolio Management, Fixed Income Investments, and Investment Management.  Jay holds a Bachelor’s degree in Chemical Engineering and a Master’s degree in Finance, both from M.I.T.