Idaho pension fund posts record year

Brad Carlson, Idaho Business Review
Idaho’s public-employee pension fund posted its best fiscal year in 25 years, gaining 20.7 percent in value for the 12-month period ended June 30. This allowed the fund to recover all losses suffered during the recession and hit an all-time high in total value.

“We try to lose less when the market’s going down, and keep up when markets are on a tear,” said Bob Maynard, chief investment officer with the Public Employee Retirement System of Idaho. “The last few years have been exactly how we hoped.”

The PERSI investment fund lagged its benchmark by 2.6 percentage points for the year. Private equity and commercial real estate, and emerging markets contributed to the relative underperformance for the year, he said. The benchmark combines the broad Russell 3000 stock index, and indicies of fixed-income securities and international developed-market equities. For 15 years, PERSI’s 7.8 percent return beat the benchmark by a point.

The Idaho fund’s one-year return for fiscal 2009, which ended about nine months after the financial markets crashed, was -16 percent, the Center for Retirement Research at Boston College reported. The one-year return for all public plans was -15.9 percent. Other states’ results included Oregon, -22.3 percent; Washington, -22.8 percent; California, -24 percent; Nevada, -15.6 percent; Montana, -20.6 percent; Utah, +12.8 percent and Wyoming, +23.8 percent.

Maynard keeps the Idaho portfolio diversified and rebalances it as needed. PERSI buys more stock when the value of its stock holdings falls below a targeted percentage, for example. PERSI in the past 20 years also benefited from investments in quality stocks and bonds, Treasury Inflation-Protected Securities, emerging-market equities, private equity and occupied commercial real estate, and an Idaho commercial mortgage portfolio with experienced borrowers, he said. The fund since the early 1990s has worked with equity managers who seek solid opportunities worldwide.

The approach targets solid returns over five to 10 years but does not render PERSI immune from one-year setbacks, he said.

Tough sledding could come in the short term because the world economy faces myriad challenges and the investment markets are well into their traditional post-recession run-up, Maynard said.

“Unless something dives off a cliff again, which can happen, I expect we are about two-thirds of the way through that run,” he said.

Regardless, Western economies likely will grow over five to 10 years, Maynard said.

PERSI Executive Director Don Drum said the recent one-year gain, to about $12 billion, pushed PERSI to more than 90 percent funded. When a pension plan is 80 percent funded it is considered solid, with an asset value big enough to meet ongoing obligations as long as the fund continues to achieve expected returns, he said.

PERSI fell to 74.3 percent funded during the recession and started the recently concluded fiscal year at 78.4 percent, he said. An annual return of 7.75 percent is needed to sustain the current funded status, he said.

Investment returns drove the increase in funded status. In the past two years, the number of employees paying into PERSI dropped from more than 68,000 to about 67,000 while the number of retirees drawing benefits increased by about 1,500, Drum said.

About 125,000 people participate in PERSI – 67,000 working in public jobs and contributing, 23,000 earning interest on previous contributions but not accumulating more credited service, and 35,000 retirees drawing benefits.

The fund consists of about 70 percent equity investments and 30 percent fixed-income investments.

Published 7-15-2011