Market Rebound Spurs Record 33.55% Return for NY State Pension Fund

The New York State Common Retirement Fund (NYSCRF) reported a 33.55% investment return for the fiscal year ending March 31, the largest one-year investment return in the fund’s history. It easily beat its long-term expected rate of return of 6.8%.

The performance, which reflected the financial markets’ rebound from last year’s market crash after the COVID-19 pandemic first hit, raised the fund’s asset value to an estimated $254.8 billion from $194.3 billion as of the end of fiscal year 2020.

The New York fund lost about 2.7% in the previous fiscal year, which ended as the pandemic closed down a lot of the country and sent markets skidding.

“The state pension fund rode the market rebound from the depths of the pandemic and enjoyed the largest one-year investment return in its history,” New York State Comptroller Thomas DiNapoli said in a statement. “This outsized return reinforces the fund’s position as one of the strongest in the nation.”

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However, DiNapoli cautioned that the historic returns come with a warning: “Markets remain volatile and as unpredictable as ever,” he said. “With our talented investment staff, I will continue to manage our state’s pension fund with prudence and a focus on stable, long-term results.”

The investment performance was led by global and domestic equities, which returned 64.58% and 61.40%, respectively, followed by non-US equities, which gained 54.57% during the year.

The portfolio’s real estate investments were the weakest-performing asset class, aside from cash, returning 2.19%, followed by fixed income, which returned 2.61%. Real assets was the only other asset class that didn’t end the year with double-digit returns at 7.34%.

Among the portfolio’s other asset classes, private equity and credit returned 23.83% and 20.38%, respectively, followed by opportunistic/absolute return, which returned 19.69%.

As of the end of fiscal year 2021, the fund’s asset allocation was 33.58% in domestic equities, 20.82% in fixed income, 13.64% in non-US equities, 10.57% in private equity, 6.75% in real estate, 5.60% in global equities, 3.26% in credit, 2.32% in cash, 1.97% in opportunistic/absolute return strategies, and 1.49% in real assets.

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Tags: Coronavirus, COVID-19, New York State Common Retirement Fund (NYCRF), NYSCRF, Pandemic, record returns, Thomas P. DiNapoli

Participants in the $1.6 billion Caesars Entertainment Corporation Savings & Retirement Plan are suing the casino operator and its investment consultant Russell Investment Management for allegedly breaching their fiduciary responsibilities and costing the plan more than $100 million.

The lead plaintiff is a current participant in Caesars’ retirement plan and has been a participant since 2014. According to the lawsuit, her account was invested in the State Street age-based fund for her age group until 2017, when the State Street option was removed from the plan and her account was transferred to Russell’s competing age-based fund.

The suit alleges that when Russell obtained control of the plan’s investment menu in 2017, the year Caesars emerged from bankruptcy, it promptly filled the plan with its own poorly performing proprietary funds.

“Russell’s gambit was a life preserver for its struggling funds and brought $1.4 billion in new investment at a critical time when other plan sponsors were leaving Russell’s funds,” said the complaint, which added that plan already had a menu of State Street funds that “consistently outperformed Russell’s funds” at similar or lower levels of risk. “Russell’s self-serving swap has been disastrous for the plan and cost participants more than $100 million in lost investment earnings to date,” it continued.

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The plaintiffs say plan participants have struggled to build their nest eggs since the leveraged buyout (LBO) of the company in 2008 by private equity firms and its subsequent bankruptcy in 2015. They noted that the company eliminated matching contributions for three straight years and then brought them back “at anemic levels” until well after it emerged from bankruptcy in late 2017.

“As Caesars’ owners and executives scrambled to solve the company’s unsustainable LBO debt, unloading plan responsibilities to a ‘fiduciary outsourcing’ provider like Russell was an attractive option,” the lawsuit stated. “Russell took over control of the plan’s investment menu in 2017 as a fractured Caesars was divvied up among creditors.”

The plaintiffs argue that plan’s investment menu did not need an overhaul, saying it had offered leading, low-cost investment funds, including age-based balanced options managed by State Street that had long track records of success. The lawsuit also said that instead of prudently and objectively evaluating the plan’s needs, Russell transferred all of the plan’s assets to its own proprietary funds, including more than $1 billion to its age-based funds.

The lawsuit argues that Russell’s age-based funds had yielded “disappointing results” and lost or were soon to lose other key investors, including Russell’s own employee retirement plan.

“Russell’s funds have continued to underperform the funds that they replaced while taking on the similar or higher levels of risk,” the lawsuit said. “The deal was a boon to Russell, however, which was able to add $1.4 billion in new investment to help prop up its funds at a difficult time for the funds.”

In response to the complaint, a Russell spokesperson said, “We believe this lawsuit is without merit, and we intend to vigorously defend the firm against these allegations.” Caesars said it doesn’t comment on pending litigation.