Stock market decline saps retiree system
Posted on Thursday, August 21, 2008
The Arkansas Public Employees Retirement System’s investments dipped in value by about $ 350 million last fiscal year as its domestic and foreign stock investments declined, an investment consultant said Wednesday.
System investments were valued at $ 5. 633 billion on June 30, down from $ 5. 985 billion a year earlier, Callan Associates Inc. reported to the system trustees.
The investment return of negative 4. 45 percent ranked among the top 44 percent of public pension systems last fiscal year, Atlanta-based Callan said.
The system isn’t the only Arkansas public retirement group reporting investment value losses amid high gasoline prices, declining housing prices and an overall economic downturn. Earlier reports of Arkansas systems combined with Wednesday’s public employees system report add up to value losses exceeding $ 1 billion in the fiscal year.
Only the highway employees ’ system reported overall value gain.
The public employees system’s domestic stock market investments recorded a negative 8. 7 percent return, dropping to $ 2. 55 billion as of June 30, Callan said. The managers of those investments performed better than many other managers last fiscal year, said John Krimmel of Callan.
The system’s foreign stock market investments posted a negative 9. 27 percent return, declining to $ 1. 1 billion, Callan said.
The trustees voted to fire the system’s two managers of foreign stock investments, RiverSource Investments of London and UBS Global Advisors of Chicago, and temporarily place the money managed by the companies in the Bank of New York Mellon’s All Country World Index ex US fund They also voted to hire Pyramis Global Advisors of Boston to manage roughly $ 150 million in foreign stock market investments, starting later this year. The trustees plan to hire a few other foreign stock market investment managers after they interview 10 managers in November.
System domestic bond investments earned a 4. 43 percent return, increasing to $ 1. 1 billion, Callan said, and alternative investments such as Arkansasrelated investments along with real estate and timberland investments earned a 6. 22 percent return, increasing to $ 839, 567.
Krimmel said he’s disappointed by the bond managers ’ performance, but he isn’t recommending any changes yet.
CastleArk Management’s Arkansas Energy Fund posted a staggering return of about 79 percent in the nine-month period that ended June 30 to reach $ 89 million, he said. The trustees decided to discuss investing more in energy stocks during their investment retreat this fall.
The trustees decided Wednesday to keep the percentage of employee payroll that the system charges to state and local governments essentially the same in the fiscal year that will start July 1, 2009. The current rate is 11. 01 percent and the rate will be rounded to 11 percent, effective July 1.
The system has 44, 357 working members, who were paid an average annual salary of $ 31, 107 and had a collective annual payroll of $ 1. 379 billion as of June 30, according to a preliminary report from system actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich.
It also includes 21, 761 retired members who were paid a total of $ 246 million a year in pension benefits as of June 30, the report said.
The system’s unfunded liabilities totaled $ 664. 4 million as of June 30. It would take about 13 1 / 2 years to pay them off, based on keeping the rate charged to state and local governments the same, Gabriel officials said. Unfunded liabilities are the amount by which the system’s liabilities exceed the actuarial value of system assets. On June 30, 2007, the unfunded liabilities totaled $ 676 million, Gabriel said, and would take 18 years to pay off. The trustees decided to submit a budget request for the next biennium that would include the creation of several new positions, including a chief investment officer at a starting salary of about $ 122, 000 a year.
Gail Stone, executive director of the system, said the median annual salary for a chief investment officer for public pension systems is about $ 250, 000, and Arkansas Teacher Retirement System Executive Director Paul Doane is seeking a similar salary for a new chief investment officer post for his system.
But Stone said, “The political realities in Arkansas beg to differ.” Arkansas’ public employees and teacher retirement systems are the only state-level pension systems responsible for both investments and retirement benefits and operating without a chief investment officer according to polling through the National Association of State Retirement Administrators, she said in a memo to the trustees.
Doane’s and Stone’s salaries are $ ™, 000 each for this fiscal year, according to the Bureau of Legislative Research.
Among the other state systems reports for last fiscal year, the teacher system heard its investments lost $ 638 million in value to drop to $ 10. 87 billion; the state police system’s fell $ 35 million to $ 214. 9 million; the judges’ system’s declined $ 8. 5 million to $ 160. 7 million.
The highway employees’ system increased in value $ 56 million to $ 1. 241 billion.
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