Public pension ends fiscal year with losses in assets

Published 7:15 am Friday, August 12, 2022

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Kentucky Today

After seeing a record return on investments during the 2021 fiscal year, the Kentucky Public Pension Authority says the fiscal year that ended June 30, did so with a loss of value in both pension and insurance assets.

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Pension fund investments for the County Employees Retirement System, or CERS, the Kentucky Employees Retirement System, or KERS, Hazardous and Nonhazardous plans, and the State Police Retirement System, returned -5.7% net of fees in Fiscal Year FY 2022. The insurance fund return was -5.3% net of fees across all plans.

The investment performance resulted in a fiscal year-end market value of $21.6 billion across all funds as of June 30, which represents a $1.1 billion decrease in the market value of pension and insurance assets from June 30, 2021. FY 2021 saw a record investment performance across all funds, with an increase of 25%.

Overall, the pension portfolios managed by the Kentucky Public Pensions Authority, or KPPA, which comprise all CERS, KERS, and SPRS pension funds, slightly outperformed their benchmark, which returned minus 5.8% for the fiscal year. Together, the CERS Nonhazardous and Hazardous portfolios returned  minus 5.9% compared with their benchmark’s  minus 6.4%. The KRS pension portfolios, comprising KERS Nonhazardous, Nonhazardous, and SPRS pensions, returned minus 5.1%, slightly worse than the benchmark’s minus 4.8% return.

Most broad market indexes finished the fiscal year with negative returns. In equities, the Russell 3000 fell 13.9%, the Bloomberg Barclays US Aggregate bond index fell 10.3%, and the NCREIF NFI-ODCE Net 1 Quarter in Arrears Index, which tracks Real Estate, fell 27.2% for the fiscal year.

Despite the negative overall returns, the pension portfolios managed by KPPA outperformed most of its peers, according to analysis by consultant Wilshire. KPPA also outperformed most of its peers in terms of risk-adjusted returns, or returns per unit of risk, also known as the Sharpe ratio. KPPA considers the Sharpe ratio to be the industry standard for measuring risk-adjusted returns.

“Protecting our systems’ assets is paramount, and with volatile markets that caused many other funds’ performance to be worse than ours, I am pleased in particular with our relative risk-adjusted returns,” said David Eager, the KPPA Executive Director.

Steve Willer, the KPPA’s Chief Investment Officer, echoed Eager’s assessment.

“In a turbulent and challenging year for markets, we were able to produce strong relative risk-adjusted returns for participants and outperform our benchmark by maintaining our disciplined investment approach,” Willer said. “We are well positioned to take advantage of market opportunities over the coming quarters.”

The KPPA is responsible for the investment of funds and administration of pension and health insurance benefits for over 401,000 active and retired state and local government employees, state police officers, and nonteaching staff of local school boards and regional universities.