SD Pension Recoups Investment Losses, Continues 'Focus on the Long-Term'

(April 7, 2011) — The South Dakota Retirement System (SDRS) has recovered its investment losses, with gains in equities and real estate fueling the recovery, Matt Clark, the fund’s state investment officer, tells aiCIO.

Investment values have increased 23.1% year-to-date for the 2011 fiscal year that ends June 30, with gains in stocks and other investments pushing the system’s assets to about $7.8 billion.

The fund’s current allocation consists of 55% global equity, 11% private equity, 12% real estate, 8% in high-yield and distressed fixed-income, about 13% in investment-grade fixed-income, and the remainder in merger and convertible arbitrage. “We were prepared for a longer wait, but we’re glad that the markets are recovering as quickly as they are,” Clark tell aiCIO. “There may be a relapse in the market, but we will continue to stay focused on the long-term.”

Echoing recent statements by Ontario Teachers’ Pension Plan (Teachers’) chief investment officer Neil Petroff, Clark emphasizes the value of active management, noting that the South Dakota fund relies almost exclusively on active management. “Part of the reason we embrace this approach is because we manage most of our assets internally, with costs much lower than external management. If we had to pay high outside fees for active management, we’d probably rely less on this strategy,” he says, noting his belief that outsourcing investment expertise should be used if a fund’s budgetary structures are unable to accommodate internal management. “We’ve had good fortune in getting the investment support we need internally,” Clark notes.

Other funds have reported optimistic results following the economic downturn. This week, the Ontario Teachers’ Pension Plan (Teachers’) chief investment officer Neil Petroff, riding a 14% annual return in 2010, told aiCIO that the fund’s active strategy has added more than C$23 billion to the bottom line since its inception in 1990.

Meanwhile in the US, the New Jersey State Investment Council revealed last month that it has approved new investment guidelines for the state’s pensions to boost returns, which will allow a higher alternatives allocation totaling 35% of assets from the current cap of 25%. The new rules, approved by the New Jersey State Investment Council, which makes investments for state pension assets, come as New Jersey’s pension funds gained 15% this fiscal year. As of February 28, assets were $72.6 billion, which represents a $1.8 billion increase since December 31.