Asset AllocationAugust 23, 2022

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

CIO Ronald Schmitz credits outperformance to diversification strategy and strong private markets.

Reported by Michael Katz

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.

“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.”