Connecticut’s two largest pension funds, the State Employees’ Retirement Fund (SERF) and the Teachers’ Retirement Fund (TRF), reported 2017 investment returns, net of expenses, of 16.51% and 16.33%, respectively.
The funds outperformed their benchmarks by 74 and 63 basis points, respectively, as well as their actuarial investment assumptions of 6.9% and 8.0%. Combined, the two funds represent 91% of the Connecticut’s pension and trust fund portfolio.
The Connecticut Municipal Employees’ Retirement Fund (CMERF), which is the state’s third-largest fund, reported 2017 returns of 14.53%, net of expenses, which outperformed its benchmark by 50 basis points. CMERF also beat out its investment return assumption of 8.0%.
“Our pension funds profited handsomely from the market’s performance,” said Connecticut Treasurer Denise Nappier in a release. “The soundness of our strategic, diversified approach to portfolio design has enabled us to achieve returns that more than doubled the actuarially assumed rates of return for SERF and TRF, and that was 80% higher than the assumed return for CMERF.”
During 2017, the Connecticut Retirement Plans and Trust Funds’ (CRPTF) total value increased by $4.2 billion to $34.4 billion, its highest level ever at the end of a calendar year. And according to the Wilshire Trust Universe Comparison Service (TUCS), the CRPTF exceeded the investment performance of 70% of its peers.
The $4.2 billion in gains included investment returns of $3.5 billion, and net positive cash flows of $700 million. According to the Connecticut treasurer’s office, the 2017 SEBAC agreement to restructure SERF, and the lowering of the assumed rate of return to 6.9% from 8.0%, contributed to the state’s required contributions exceeding distributions for payment of benefits for the first time since 1999.
“This net positive cash flow will more than likely revert to a negative cash flow,” said Nappier, “as a portion of the state’s contribution and the contributions from new hires are directed under the SEBAC agreement to a new defined contribution plan, going forward.”
The funds’ top performing equities came from emerging, domestic, and international developed markets, which returned 34.9%, 24.3% and 21.8%, respectively. The emerging market debt portfolio of the CRPTF returned 14.2%, while the real estate and private equity portfolios posted returns of 7.3% and 12.9% respectively.
The strong returns were “a much needed boost for the asset side of the pension fund ledger,” said Nappier. “This outperformance is especially needed at a time when the state is facing serious fiscal difficulties.”
Tags: Connecticut SERF, Connecticut TRF, Denise Nappier, Pension, Returns