First Quarter 2017 Update

May 18, 2017

Markets Performance Summary
Financial markets continue to grind higher despite signals that tax reform, deregulation and infrastructure spending – essentially the Trump pro-growth agenda—may be harder to achieve than originally thought.

In the United States, we continue to see slow economic growth and mixed economic indicators, while Europe is clearly picking up and China may be slowing down. Importantly, in the first calendar quarter we saw sentiment of equity investors and bond investors begin to diverge: equities continued higher while bond yields, particularly long-duration bonds, moved lower. This may signal a change in expectations around the long-term health of the global economy. While equity investors are optimistic and stock prices have moved steadily higher since last November, bond investors have grown more cautious recently, causing long-term yields to move lower.

And while market volatility has been low while markets have moved higher, we are still mindful of the many economic and geopolitical risks that could disrupt this trend in the future. Without additional economic data to confirm a more robust global expansion, equity valuations and expectations remain elevated, and we believe it is prudent to remain cautious, therefore the asset allocation adjustments we made earlier in the year remain appropriate.

PRIT Fund Performance Summary
As of March 31, 2017, the PRIT Fund net asset value stood at $65.1 billion.
For the quarter ended March 31, 2017, the PRIT Fund was up 4.9%, outperforming the total core benchmark of 4.2% by 66 basis points.

  • This performance equates to an investment gain of $3.0 billion over the quarter.
  • This outperformance equates to $412 million of value above the benchmark return.
  • Six of the seven major asset classes outperformed their respective benchmarks.

For the one-year ended March 31, 2017, the PRIT Fund was up 11.1%, underperforming the total core benchmark of 11.4% by 30 basis points.

  • This performance equates to an investment gain of $6.7 billion.
  • This underperformance equates to $181 million of value below the benchmark return.
  • Six of the seven major asset classes outperformed their respective benchmarks.
  • Net total outflows to pay benefits for the one-year ended March 31, 2017, were approximately $1.5 billion.

Organizational Update

Luis Roman – Director of Risk Management
On Monday, April 17, Luis Roman, Ph.D. joined the PRIM team as Senior Investment Officer – Director of Risk Management. Luis joins us after more than 20 years in the investment industry and academia. Prior to joining PRIM, Luis was the U.S. Head of Multi Asset Class and Alternatives Investment Risk at Columbia Threadneedle Investments, Global Head of Fixed Income Investment Risk at State Street Global Advisors, and a Quantitative Analyst at Putnam Investments. He is a recognized expert in the design and implementation of risk management processes for asset management firms. Luis began his career in academia where he was visiting assistant professor at the University of California in Irvine, and Worcester Polytechnic Institute. He earned his Master’s in Applied Mathematics from the University of Chicago and his Ph.D. in Mathematics from the University of Minnesota.

Bill Li, CFA, CAIA – Investment Officer
Bill recently earned the Chartered Alternative Investment Analyst (CAIA) designation after passing the required two-part exam. The CAIA curriculum is designed to provide a broad knowledge in alternative investments including hedge funds, private equity, real assets and structured products.

Portfolio Completion Strategies (PCS) Team
For the second consecutive year, PRIM’s PCS team (Eric Nierenberg, Ph.D. and Bill Li, CFA, CAIA) has been named a finalist at the Institutional Investor Magazine’s 15th Annual Hedge Fund Industry Awards to be held in June in New York City. The award recognizes excellence in innovation and thought leadership in the Hedge Fund space. Our team joins four other finalists from North America in the Large Public Plan category. As a reminder, PRIM won the exact award last year. It is highly unusual to be nominated for the same award two years in a row and a fitting tribute to the leadership that PRIM has demonstrated in the Hedge Fund space.

Finance Team
The PRIT Fund’s fiscal year Comprehensive Annual Financial Report (CAFR) was awarded the Government Finance Officer Association’s (GFOA) Certificate of Achievement for Excellence in Financial Reporting for the 12th consecutive year. The award recognizes the accuracy and completeness of our CAFR. A special acknowledgement to Qingmei Lee, add Title, and David Gurtz, CFA, CPA, PRIM CFO and COO for their hard work to make this award possible.

Investment Team Personnel Moves
We are rolling out a series of personnel moves focused on enhancing PRIM’s role as a leading innovator and performance leader among public pension funds.
• Michael R. Bailey, Senior Investment Officer for Private Equity, will become the second person to take part in PRIM’s Professional Development Program, which rotates asset class heads through teams other than their own. Michael joined PRIM in 2013.
• Sarah N. Samuels, CFA, CAIA, Deputy Chief Investment Officer, will add responsibility for Hedge Funds to her current responsibilities overseeing Public Markets. Sarah was the first participant in PRIM’s Professional Development Program. She joined PRIM in 2011.
• Eric R. Nierenberg, Ph.D., who since joining PRIM in 2012 had been Senior Investment Officer – Director of Hedge Funds and Low Volatility Strategies, has been named PRIM’s Chief Strategy Officer. In this new role, Eric will look across the entire $65 billion investment portfolio for innovative approaches to identify diversification strategies, enhance returns and reduce fees.
Dr. Nierenberg’s designation as PRIM’s Chief Strategy Officer is effective immediately. The re-aligning of responsibilities related to Hedge Funds will be a gradual process with no fixed timetable.