Teacher pension fund reflects market unrest
Posted on Friday, November 16, 2007
The value of the Arkansas Teacher Retirement System’s investments increased $ 210 million, topping $ 11. 7 billion when the quarter ended Sept. 30, the system’s investment consultant said in a report issued Wednesday.
The value has since dropped to about $ 11. 5 billion after peaking at about $ 12 billion at the end of October, said system executive director Paul Doane.
He said there’s been a lot of turmoil in the stock markets, and he expects that to continue.
Doane noted that the trustees in October approved a plan aimed at reducing the system’s reliance on investments in the domestic stock market.
The system’s Investment Committee recommended later Wednesday that the trustees OK investing $ 50 million in a private equity fund and $ 30 million in a real-estate fund.
The investments increased from $ 11. 538 billion June 30 to $ 11. 749 billion Sept. 30, according to a report from the Chicago-based firm of Ennis, Knupp & Associates.
The report said the investment return of 2. 9 percent in the quarter ranked in the top 19 percent among public retirement systems. The 17. 1 percent return in the year ending Sept. 30 ranked among the top 25 percent.
The value of the domestic stock market investments increased from $ 5. 09 billion to $ 5. 16 billion in the quarter, and foreign stock market investments went from $ 2. 18 billion to $ 2. 25 billion, according to Ennis. Bond investments increased in value from $ 2. 59 billion to $ 2. 66 billion, and private equity investments declined from $ 598 million to $ 547 million, Ennis reported. Real-estate investments increased from $ 564 million to $ 594 million, and timberland investments remained at $ 265 million, Ennis said.
OTHER INVESTMENTS The committee recommended that the trustees approve investing $ 50 million in Boston Ventures Limited Partnership VII, a private equity fund. Boston Ventures Management LLC of Boston is seeking to raise $ 450 million to $ 500 million for the fund, according to Michael Bacine of the system’s privateequity consultant, Franklin Park Associates of Bala Cynwyd, Pa. The fund will invest in medium-size media and communication companies primarily in the United States, he said.
The annual management fee paid by the system will be 2 percent of the investment, Bacine said. There also will be an incentive fee of 20 percent of the investment return beyond an 8 percent return a year.
Doane said he successfully invested through the firm when he worked for Massachusetts ’ public retirement system in the early 1990 s.
The committee also recommended that the trustees approve investing $ 30 million in a realestate fund called Fidelity Real Estate Growth Fund III.
The fund will be managed by Boston-based Fidelity Real Estate Group of Pyramis Global Advisors, said Scott Brown of Ennis.
The fund will invest in properties requiring rehabilitation, management turnarounds, development, significant improvements and “distressed opportunities,” he said. The fund will invest an average of $ 20 million apiece in about 50 properties, he said.
The annual management fee paid by the system will be 1 percent of the investment, he said. There also will be an incentive fee of 20 percent of the investment return beyond a 10 percent return each year.
In October the trustees approved a plan to increase their target for private equity investments from 6 percent of the value of the system’s investments to 10 percent and raised real estate from 5 percent to 10 percent.
In other action Wednesday, the committee recommended raising the $ 19 million budget for the expansion and renovation of the Woodland Heights retirement center in Little Rock to $ 20. 9 million.
The original contract for the project totaled $ 18. 1 million, according to a letter from Hugh Roberts, real-estate director for the system, to the system’s trustees. System officials said the latest increase includes needed renovations in a building that has had little improvement during the past two or so decades, a nearly $ 1 million contingency fund, and a doubling of tile costs after a subcontractor backed out on his bid. The expansion entails the addition of 83 apartments to the 62-apartment center and aims at making the center profitable.
The system took ownership of the center and two nursing homes in Little Rock and North Little Rock in July 2001 after Riley Co. defaulted on a $ 14 million loan from the system.
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