ERS posts 3.6% gain in quarter
The state pension fund trailed most of its peers during the period
The state's largest pension fund topped the $10 billion asset level for the first time, starting its new fiscal year with a 3.6 percent gain in the quarter ended Sept. 30.
The Employees' Retirement System fund ended its fiscal first quarter with $10.2 billion in assets, and put itself well on its way to match or exceed its annual actuarial target of 8 percent.
"The target return for the long term for ERS is 8 percent to meet their obligations for participant payments, so if they can meet 8 percent in a year, that's great. And they've been exceeding that by fairly wide margins," said Janet Becker-Wold, senior vice president of Callan Associates
, the San Francisco-based adviser that makes recommendations to the ERS board.
Still, the ERS fund trailed its benchmark return of 3.8 percent last quarter and was beaten in its peer group by 85 percent of the approximate 40 large pension funds that Callan tracks, Becker-Wold noted, attributing that shortfall to short-term volatility.
Over the longer term, the fund is up 10.7 percent over the past 12 months, and has an annualized return of 13 percent over the last two- and three-year periods and 9.4 percent over the last five years. Also, over the last two-, three- and five-year periods, the ERS fund has been in the 50th percentile or better compared with its peers.
"If you look at the absolute number -- whether it's over 8 percent or not -- is really where the rubber meets the road," Becker-Wold said yesterday before addressing the ERS board.
The ERS provides retirement, disability and survivor benefits for more than 100,000 people, including more than 63,000 active members.
Domestic stocks in the ERS fund were up 4 percent last quarter, with the large-cap core sector leading the way with a gain of 5.2 percent. International stocks rose 4.2 percent. In the fixed-income area, domestic fixed income gained 3.8 percent but international fixed income edged up only 0.3 percent.
Becker-Wold said it's important that the ERS fund be exposed to international stocks, as well as domestic, because of the diversification it provides in the portfolio.
"If the dollar declines, which there's some consensus that will happen, then holding foreign stocks will benefit, if nothing else, just from the currency -- foreign currency rising relative to the dollar," she said.
Becker-Wold said the Federal Reserve's pause in raising interest rates has encouraged many investors but there is no indication yet whether the policymakers were done with their moves or would start reducing rates.