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US Public Pension Assets Tumble in Q4

Investment losses lead to $306 billion funding loss.

By Michael Katz

Aggregate investment losses of 6.39% led to a $306 billion loss in funding for the 100 largest public defined benefit pension plans in the US during the fourth quarter of 2018, which was the largest quarterly funding decrease in more than two years, according to consulting firm Milliman, Inc.

The decrease in the funded status was also more than double the prior largest decrease, according to Milliman.

Estimated investment losses for plans during the quarter ranged from 10.27% to 2.18%, and as a result, the funding ratio of the pension funds as tracked by the Milliman Public Pension Funding Index (PPFI) fell to 67.2% as of the end of December, from 72.9% at the end of September.

“Public pensions took a huge hit in the fourth quarter of 2018,” said Becky Sielman, author of the Milliman 100 Public Pension Funding Index, in a release. “And for those plans in which benefits paid out exceed contributions coming in, this is especially difficult news, as investment returns are critical to slow the outflow of funding.”

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As of Dec. 31, 2018, the PPFI deficit was $1.693 trillion, compared to $1.387 trillion at the end of September 2018. The total pension liability also continued to expand to an estimated $5.164 trillion at the end of the fourth quarter, up from $5.123 trillion at the end of the previous quarter.

Funded ratios overall moved lower during the final quarter of the year, with nine of the 100 plans dropping below the 90% funded mark. Milliman said there were only eight plans above the 90% threshold, compared to 17 at the end of the third quarter. Additionally, the number of poorly funded pension plans also increased, as 33 plans’ funded ratios fell below 60%, with another 11 plans below 40% funded.

The Milliman 100 PPFI aggregate asset value declined to $3.471 trillion at the end of 2018 from $3.736 trillion at the end of the third quarter. The plans lost investment market value of approximately $239 billion, on top of approximately $26 billion flowing out, as benefits paid out exceeded contributions coming in from employers and plan members.

The results of the Milliman 100 Public Pension Funding Index are based on the pension plan financial reporting information disclosed in the plan sponsors’ Comprehensive Annual Financial Reports (CAFRs), which reflect measurement dates ranging from June 30, 2016, to December 31, 2017.

Related Stories:

Top 100 US Public Pensions Lose $23 Billion in Q2

US Public Pensions’ Funded Status Falls to 71.4% in Q1

Home > News > Asset Allocation > Alaska’s New CIO Details the Fund’s Prolific Co-Investment Program
Asset Allocation

Alaska’s New CIO Details the Fund’s Prolific Co-Investment Program

Despite recent losses, co-investments have generated a 63.4% annualized five-year return.
By Elijah Owens

The $60.4 billion Alaska Permanent Fund Corp. (APFC) recently reported that its overall returns dipped into negative territory during its most recent reporting period—down 3.19% in the first half of the fiscal year 2019—much like the rest of the pension landscape after global equity markets fell. But the investment team managed to mitigate the losses and diversify into customized strategies, such as the fund’s $1.6 billion co-investment program that generated five-year annualized returns surmounting to 63.4% as of December 31, 2018.

The fund’s recently-appointed Chief Investment Officer Marcus Frampton and the fund’s Head of Alternatives, Steve Moseley, brought the co-investment approach to the APFC in 2012, after developing their strategy together for close to 15 years dating back to a prior firm.

“The overall strength of APFC’s co-investment program can be attributed to consistency of approach and discipline in applying that approach to a wide range of situations in varied market environments,” Frampton told CIO. The private markets team delegated several dozen investments consistent with the approach since its inception, spanning the fund’s infrastructure, private credit, and private equity and special opportunities portfolios, he added.

“Our APFC team tends to spend north of 50% of their time on direct investments and co-investments (versus funds), but the mix of capital deployed between funds tends to be closer to a 75-25 split, as directs are more time-intensive per unit of capital than fund investments,” Frampton told CIO.

“The team has discretion to look at opportunities from managers we currently back, those we do not currently back, fund-less sponsor-led opportunities, as well as unsponsored direct situations,” he added.

The portfolio’s returns versus their benchmarks as of December 31 are below:

 FYTD 193 years5 years
Total fund performance-3.19%7.58%6.27%
Passive Index Benchmark -6.54%5.02%3.38%
Performance Blended Benchmark-2.44%6.90%5.26%
Board of Trustees Strategic Return Objective2.18%7.03%6.52%

In a statement, Chief Executive Officer Angela Rodell said “within a long-term investment horizon, it is anticipated that the global markets will go up and down—it is part of the buying-selling-trading process of the portfolio’s holdings. And while we invest with the intent that they go up more than they go down, there are going to be dips. Our team is poised to take advantage of those market dips.” The fund gained 2.13% in its first quarter of FY19 ending in September.


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