News: Quick Takes

State pension fund loses money in final quarter of last year

Fund, with targeted annual growth of 7.25 percent, grew by only 6.3 percent in all of 2016

While new state Treasurer Dale Folwell said he hopes to spark higher returns in the state employees retirement plan, North Carolina’s state pension fund reported a loss for the fourth quarter of 2016, failing to meet targeted annual growth.

Folwell said the pension fund returns for the three-month period ending Dec. 31 showed a loss of 0.1 percent. Assets were valued at $89.1 billion, down from $89.8 billion at the beginning of 2016. (See chart.)

“The pension is solid” because the General Assembly has fully funded it, and allocated tens of millions of dollars over the past several years, Folwell said. The fund gained 6.3 percent over the past 12 months.

“However, these returns are another indication that the fund, on average, has not achieved its 7.25 percent expected rate of return over the last 15 years. At the same time, fees paid to external managers exceeded $500 million in the last fiscal year,” Folwell said.

“In this low interest-rate environment, being more realistic about returns going forward will help North Carolina maintain its ‘AAA’ bond rating,” he said.

Ardis Watkins, spokeswoman for the 55,000-member State Employees Association of North Carolina, has criticized the state’s investment policy and expressed concerns over unmet returns on investment.

She recently told Carolina Journal that basic mutual funds were returning 11.2 percent on an annualized basis. Had former Treasurer Janet Cowell chosen to invest there instead of in high-risk alternatives and other areas that generated lower returns, North Carolina could have reaped up to $20 billion more than it has over the past several years, Watkins said.

“When I applied for this job, I told the people of North Carolina that I am committed to preserving and protecting the state pension fund,” Folwell said in his release.

Watkins said SEANC believes Folwell is doing the right things for working families and that he’ll make sure North Carolina stops wasting hundreds of millions of dollars in fees paid to investment fund managers.

A whistleblower complaint has been filed with the federal Securities and Exchange Commission about North Carolina’s significant investment fee payments. The complaint’s status is uncertain. The agency does not comment on investigations.

The 2016 fourth quarter loss was attributed to a downturn in investment grade fixed income offsetting positive gains in public equity and all other asset classes. This resulted in slightly negative returns for the quarter, Folwell said in his release.

For calendar year 2016, public equity (stocks), which comprise more than 40 percent of the total fund, gained 7.3 percent. Inflation-sensitive investments rose 7.2 percent, multi-strategy was up 6.0 percent, opportunistic fixed income rose 7.1 percent, and private equity increased by 6.0 percent.

Investment grade fixed income (bonds), which is slightly more than one quarter of the total fund, rose 3.2 percent.

All of the reported performance figures are reported net of all fees and expenses.

The North Carolina Retirement Systems is the 10th largest public pension fund in the country. It provides retirement benefits and savings for more than 950,000 North Carolinians, including teachers, state employees, firefighters, police officers and other public workers.