NJ Pension Fund Returns 6.27% Misses Benchmark, Target

Fund reports ‘possible economic slowdown’ for 2020.

New Jersey’s public pension fund returned 6.27% for the fiscal year ending June 30, which is below its 7.5% assumed rate of return, as well as its benchmark’s return of 7.07%.

“We believe that the fiscal year 2019 results are generally in line with the returns of similar matched peer pension plans,” said Corey Amon, director of the state Division of Investment, at a State Investment Council meeting Sept. 25., according to local media reports. “The majority of the difference between the pension fund return and the policy benchmark is the result of relative returns within the pension fund’s largest portfolio, the US equity portfolio.”

The pension fund also reported three-, five-, 10-, and 20-year annualized returns net of fees of 9.43%, 6.21%, 9.22%, and 5.69% respectively, compared with the benchmark’s returns of 9.62%, 6.33%, 8.82%, and 5.32% for the same time periods. The fund also returned 8.29% annualized over the past 25 years, however, there is no information available for the benchmark’s 25-year return.

Investment-grade credit, private equity, andreal estate were the top performing assets for the fund, returning 10.07%, 10.03%, and 8.69% respectively. It was the third straight year that private equity had double-digit returns for the portfolio. Investment-grade credit and real estate beat their benchmarks’ returns of 9.42% and 6.55% respectively, while there was no benchmark information available for private equity.

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The fund’s worst performing assets were real assets, non-US developed market equities, and emerging market equities, which returned 0.48%, 1.16%, and 2.38% respectively.

According to the New Jersey Division of Investment’s director’s report, absolute returns were driven by positive economic and earnings growth, as well as expectations for more accommodative monetary policy during the second half of the fiscal year.

It also said that positive returns for the full fiscal year “masked volatility” as the broad market fully recovered from a steep decline October through December that “was precipitated by trade wars and concerns of higher interest rates.”

Additionally, the report said the US Equity portfolio’s emphasis on value-oriented and small cap equities affected relative returns as growth-oriented and large cap equities outperformed.

The asset allocation of the fund as of Aug. 31 was 57.53% in global growth, 20.15% in income, 8.65% in real return, 6.83% in liquidity, 4.38% in risk mitigation, 1.67% in Police & Fire Mortgage Program, and 0.24% in other cash and receivable.

Looking ahead to fiscal year 2020, the report said that “potential headwinds” include concerns related to a possible economic slowdown as well as continued trade tensions that may lead to heightened volatility in equity markets. It also said that earnings growth is expected to moderate as demand softens.

Rothesay Breaks Two Records with Two Risk Transfer Deals

Insurer signs £4.7 billion deal with Telent, and £3.8 billion deal with Allied Domecq.

By Michael Katz

UK insurance firm Rothesay Life set two pension risk transfer deal records in as many days days. The firm signed the UK’s largest-ever pension transfer deal with telecoms firm Telent covering £4.7 billion pounds ($5.8 billion), and then signed the largest buy-in ever to cover deferred and current pensioners to insure £3.8 billion of defined benefit liabilities for the Allied Domecq Pension Fund.

The deal with Telent secures future payments to 39,000 members of its defined benefit pension plan, which is known as the GEC 1972 Plan. The companies said the deal will enhance security for members while protecting their existing terms and benefits. The transaction is in two parts, with the buy-out expected to be completed before the end of 2022, and will be the largest buy-out ever undertaken in the UK, according to the companies.

Telent said the transfer deal has been a goal of the company for several years, and was possible because of the improved funding of the plan. The buy-in will see the transfer of the assets of the current plan to Rothesay Life in return for an insurance policy that will provide the funds for the plan’s current administrator to continue paying members’ benefits in full.

“Over five years ago the trustee decided that the best way to provide maximum security for our members in the long term would be to achieve buy-out,” Brian Duffin, chairman of the trustee board, said in a statement. “We believe our members will receive good service from Rothesay Life in future as well as optimal security in the payment of their benefit entitlements.”

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For the buy-out phase pensioners will receive individual pension contracts or annuities with Rothesay Life, who will then take responsibility for paying members’ benefits. All of the current terms and benefits, including annual increases and the flexibility for things like allowing members to take early retirement or take cash lump sums, will be replicated for all members.

Meanwhile, the Allied Domecq Pension Fund deal covers more than 27,000 members, of which approximately 17,000 are pensioners and 10,000 are deferred pensioners.

“This transaction is further evidence that large maturing pension schemes are increasingly looking to secure de-risking opportunities,” Sammy Cooper-Smith, head of business development at Rothesay Life, said in a statement. “

The fund will continue to hold some residual assets to support ongoing running costs as well as the payment of any pension benefits that are not covered by the policy. In anticipation of the transaction Rothesay Life’s shareholders contributed another £200 million of new equity in addition to the £500 million announced in September.

Rothesay Life’s assets now exceed £50 billion, which is more than twice what it was at yearend 2017 when it had £24 billion in assets.