Virginia Retirement System Bucks Trend, Ends Fiscal Year 2022 Up Slightly

Despite a market downturn that has caused many pension funds to report double-digit losses, the Virginia Retirement System managed to eke out a 0.6% return to bring its total asset value to approximately $101.2 billion for the fiscal year ending June 30, according to a news release.

The VRS easily outperformed its benchmark, which lost 5.5% during the fiscal year. It also reported three-, five- and 10-year annualized returns of 9.2%, 8.3% and 8.7%, respectively, beating its benchmarks returns of 6.1%, 6.6% and 7.5%, respectively, over the same time periods.

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“We registered a positive return by following VRS’ long-term strategy of diversification while taking advantage of strong private markets,” CIO Ronald Schmitz said in a statement. “Although the return was muted compared to last year’s banner 27.5%, the VRS total fund outperformed passively managed stock and bond indices by over 10%. In addition, we exceeded the assumed rate of return for the three-, five- and 10-year periods.”

The pension fund also outperformed its benchmark over the longer term, reporting 15-, 20- and 25-year annualized returns of 6.0%, 7.7% and 7.3%, respectively, compared with its benchmark’s returns of 5.2%, 6.8% and 6.5%, respectively, over the same time periods.

Schmitz, who plans to retire in January, is handing the reigns over to Andrew Junkin, who was named as Schmitz’s successor in May and will join the VRS next month.

The portfolio’s performance was buoyed by strong returns from its investments in private equity, real assets and private investment partnerships, which returned 27.4%, 21.7% and 17.0%, respectively. Meanwhile, public equity and fixed-income investments weighed down the portfolio, losing 14.8% and 10.6%, respectively, while multi-asset public strategies lost 4.7%.

As of June 30, the portfolio included approximately $29.9 billion in public equity, $19.0 billion in private equity, $15.1 billion in real assets, $14.5 billion in credit strategies, $12.9 billion in fixed income, $3.6 billion in multi-asset public strategies portfolio and $2.6 billion in private investment partnerships.

The portfolio’s asset allocation as of the end of the fiscal year was 30.5% in public equity, 18.8% in private equity, 14.9% in real assets, 14.3% in credit strategies, 13.1% in fixed income, 3.6% in public strategies portfolio and 2.6% in private investment partnerships.

“In a year scarred by inflation, war, supply chain issues and other disruptions, the VRS investment staff achieved a remarkable 6% of added value above the benchmark,” said VRS Board Chair A. Scott Andrews, “which translates to hundreds of millions toward the bottom line of the VRS trust fund.”

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Tags: Andrew Junkin, chief investment officers, fiscal year 2022, investment returns, Pension Funds, Ronald Schmitz, Virginia Retirement System

Canadian pension fund Caisse de dépôt et placement du Québec reported that its investment portfolio is down 7.9%, or C$33.6 billion ($26 billion) for the first half of the year, but remains well ahead of its benchmark portfolio, which lost 10.5% in that time. As of June 30, the pension fund had net assets of C$392 billion, according to a news release.

“The first six months of the year were very challenging. The mix of factors we faced had not been witnessed in several decades,” CDPQ President and CEO Charles Emond said in a statement. “For the past two years, we’ve been working in an environment of extremes characterized by particularly fast and pronounced changes. These unusual and unstable conditions will persist for some time.”

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Canada’s second largest pension fund reported five- and 10-year annualized returns of 6.1% and 8.3%, respectively, above its benchmark’s returns of 5.3% and 7.3%, respectively, over the same time periods. The C$28.2 billion decrease in net assets during the first half was made up of the C$33.6 billion investment loss and C$5.4 billion in net deposits.

The pension fund’s real asset investments, which include the real estate and infrastructure portfolios, returned 7.9% through the end of June, easily beating its benchmark portfolio’s return of 2.4%. The news release credits the performance to a strong showing from infrastructure assets and the logistics real estate segment, but says the asset class continues to be limited by the COVID-19 pandemic’s impact on shopping centers and office buildings.

Real estate investments returned 10.2%, but fell short of its benchmark portfolio’s 11.4% return. Over five years, the portfolio had an annualized return of 2.9%, well below the benchmark portfolio’s 6.7% return during that time, which the release attributes to the fund’s high weighting in shopping centers.

The infrastructure portfolio earned 5.8%, a sharp contrast from its benchmark portfolio, which lost 5.5% during the first half. Over five years, the asset class posted a 9.6% return, compared with 6.3% for its benchmark portfolio, which according to the release represents C$6.5 billion in added value. The release credits the strong performance to “a careful selection of assets, diligent post-investment asset management and good sectoral diversification,” including in renewable energy, telecommunications and transportation.

The equities asset class, which includes the equity markets and private equity portfolios, lost 10.6% through the end of June; however, this was better than its benchmark portfolio’s loss of 11.9%. Over five years, the asset class had an annualized return of 9.8%, compared with 8.6% for the benchmark portfolio, representing C$10 billion in added value.

As a result of the market downturn, the equity markets portfolio recorded a loss of 16.0% for the first six months, but outperformed its benchmark, which lost 17.2%. The portfolio had a five-year annualized return of 5.5%, while its benchmark portfolio returned 6.0% in that time. The release attributes the underperformance to the fund’s significant underexposure to certain technology giants.

The private equity portfolio was also down for the first half of the year, losing 2.4%, but beating its benchmark portfolio’s loss of 4.1%. Over five years, the portfolio produced an annualized return of 17.6%, while its benchmark portfolio earned 12.4% in that time.

Emond also said in an earnings call that CDPQ is exploring its legal options regarding a recently revealed loss of $150 million from an investment in crypto lending firm Celsius, which filed for bankruptcy last month.

“We will preserve our rights and explore legal options,” Emond said on the conference call. “We were interested in seizing the potential of blockchain technology, but clearly things did not go as expected.”