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Asset Allocation

Tech Stocks Fuel Chicago Police Pension’s 11.8% Return in 2023

Despite double-digit gains that raised the fund’s value to nearly $3 billion, the returns fell just short of the pension benchmark’s performance.

By Michael Katz



The Policemen’s Annuity and Benefit Fund of Chicago’s 11.8% return in 2023, raising the pension fund’s asset value to just under $3 billion. However, it fell just short of its benchmark’s 12.1% return.

The double-digit investment gain was led by the pension fund’s equity assets, which accounted for the portfolio’ largest allocation at more than 55% and were the top-performing asset class for the year ended Dec. 31. Despite an 18.89% return, the fund’s equities underperformed its benchmark by more than 300 basis points.

The pension fund’s top equity holdings include tech giants Apple and Microsoft at 2.9% each, followed by Amazon and NVIDIA at 1.6% and 1.2%, respectively, and Google parent company Alphabet at 1.0%. Semiconductor stocks were the top equity performers for the year as Mediatek and Intel returned 45.2% and 41.8%, respectively, for the fund, followed by Broadcom, which earned 35%. The fund’s holdings in Mexican bank Grupo Financiero Banorte and Samsung returned 27.5% and 20.2% respectively, while its stock in Amazon and Microsoft were up 19.5% and 19.3%, respectively.

The fund’s opportunistic credit portfolio returned 15.80%, beating its benchmark’s return of 12.34%, followed by fixed-income assets, which earned 7.22% and topped its benchmark’s 5.53% return.

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Total infrastructure assets had the greatest outperformance for the fund, returning 6.28% for the year, while its benchmark lost more than 8% during the same period. Hedge fund assets grew 4.84% for the year, which was 150 basis points short of its benchmark, while private debt – which had the largest underperformance – returned 3.10%, compared with its benchmark’s return of 8.20%. The pension fund’s real estate assets lost 2.41% for the year but outperformed its benchmark by nearly six percentage points.

As of the end of 2023, the pension fund’s asset allocation was 34.9% U.S. equity, 18% fixed income, 16.8% non-U.S. equity, 6.5% real estate, 5.2% hedge funds, 4.6% private equity, 3.8% infrastructure, 3.4% long/short equity, 3.3% opportunistic credit, 2.2% private debt, and 1.3% cash.

The pension fund reported three- and five-year annualized returns of 4.3% and 8.3%, respectively, compared with its benchmark’s returns of 4.4% and 8.0% over the same periods. It also registered annualized returns of 7.4% over seven years, equaling its benchmark, and a 10-year return of 6.4%, which just beat its benchmark’s 6.3% return.

Over the longer term, the fund reported a 15-year annualized return of 8.3%, ahead of its benchmark’s 7.8% return, and an 8.3% annualized return over the 40 years since its inception in 1984.


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Home > News > Regulation > IRS Proposes Regulations to Codify Stock Buyback Tax
Regulation

IRS Proposes Regulations to Codify Stock Buyback Tax

Stock buybacks valued at under $1 million would not be subject to the tax.
By Paul Mulholland



The Internal Revenue Service proposed regulations on Wednesday that would implement the 1% excise tax on stock buybacks that was passed as part of the Inflation Reduction Act. The tax applies to repurchases made after December 31, 2022.

The proposal, which is open for comments, would exempt stock repurchases that do not exceed $1 million. Companies subject to the tax could also reduce the value of their buybacks by the value of stock that is issued in the same year. The tax on buybacks is not due until regulations are finalized, though the tax obligation still accrues starting from 2023.

Companies would have to report the excise tax on the Form 720 Quarterly Federal Excise Tax Return with Form 7208 attached. Form 7208, which “would be used to figure the amount of stock repurchase excise tax owed,” has not yet been finalized, though a draft version is accessible.

President Joe Biden has committed to increasing the tax on stock buybacks to 4% and his initial budget proposal for 2024 included such a measure, though it did not find its way into any 2024 budget bill. A budget table published by the Treasury Department estimated that increasing the tax to 4% would raise $15.3 billion in tax revenue in 2025.

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According to data from S&P Dow Jones Indices, stock buybacks fell in 2023 to $795.1 billion from $922.7 billion in 2022 among companies in the S&P 500 Index.

Buybacks can be popular because the money investors receive is taxed as capital gains, as opposed to issuing dividends, which are taxed as income. According to a 2023 study from the Wharton School of Business, buybacks also tend to be more supportive of stock price by increasing demand for shares. The study estimates that a buyback tax of about 4.6% would eliminate the tax preference of buybacks over dividends and a tax of 4% would raise $265 billion in federal revenue over a ten-year period.

The comment period for the proposed regulations ends on June 11.

 

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