RALEIGH – Republican State Treasurer Dale Folwell reported Thursday that the state pension fund posted overall gains of 7.3 percent for Fiscal Year 2017-2018. However, earnings to date for 2018 reflected only a 1.3 percent increase. The approximately $100 billion fund, known as the North Carolina Retirement Systems, is managed by a team of investment professionals at the N.C. Department of State Treasurer.
“For the first six months of 2018, the plan has paid out over $3 billion in benefits, $300 million in Wall Street fees while earnings were essentially flat,” said Treasurer Folwell. “Additionally, the twenty-year average of 6.1 percent misses the assumed rate of return by almost an entire percentage point.”
That’s the problem with government’s making promises, especially when it comes to investment returns – they are very hard to keep. If they are not met, the law says it is the North Carolina taxpayers are the hook for making up the difference.
That’s no fault of Folwell, actually, quite the contrary. Folwell has been doing yeoman’s work to shave millions off of Wall Street fees, save taxpayers money via new efficiency reforms, and steering the funds away from riskier investment classes that could end up biting in the end.
More conservative approaches tend to make returns look bad during good markets, but really prove prescient in bad ones. In the last several years average stock market returns have registered impressive gains, but that is just a small sample that ignores disrupting volatility events that can wipe out years of gains in a matter of months.
As far as setting more realistic expectations, the investment return assumption for the Fund was lowered from 7.20 percent to 7.00 percent in April, beginning with the December 31, 2017, valuations. That move was unanimously approved by the Teachers’ and State Employees’ Retirement System (TSERS) and Local Government Employees’ Retirement System (LGERS) Boards of Trustees (Boards) and it made the severity of the unfunded liability aspect of pension obligations less severe by a few percentage points, according to the Treasurer’s office.
There is a lot of work being done on the other end as well. Recently a national benchmarking survey confirmed that North Carolina continues to have the second-lowest administrative costs among any U.S. public pension fund in its peer group.
Pension administration costs for North Carolina are $23 per member, which is $70 below the peer average of $93 per member. That’s an annual savings of over $55.3 million.
Much of THAT canbe directly attributed to the leadership of Dale Folwell, a forensic accountant by trade that has a knack for ferreting out cost drags, and his renegotiating of investment manager fees to save the Fund millions every year.
These are the returns for the different asset classes:
• Public equity rose 12.5 percent
• Private equity increased 16.3 percent
• Non-Core Real Estate and Opportunistic Fixed Income gained 15.9 percent and 6.7 percent respectively
• The multi-strategy portfolio returned 6.3 percent for the 12-month period
• Inflation-sensitive and diversifier investments increased by 6.8 percent
• Investment-Grade Fixed Income was down 0.4 percent while cash holdings increased 1.4 percent
Explore a full list of asset classes in the Fund here, if you’re into that sort of thing.