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* Oy…
The largest state pension system said it made less than 1 percent on its investments during the budget year that ended June 30.
The Illinois Teachers’ Retirement System said Thursday it made just .76 percent on its more than $36 billion in assets during the state’s 2012 fiscal year.
The return was sharply lower than the 23.6 percent the system earned in 2011.
As an example, [TRS spokesman Dave Urbanek] said, if the state’s fiscal year had ended Sept. 30 rather than June 30, TRS would have posted a gain of 16.4 percent.
So, yeah, it’s bad, but they’re not complete failures.
posted by Rich Miller
Friday, Oct 26, 12 @ 10:46 am
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Wow. Really makes your imagination run wild as to what this might mean for the budget.
Comment by Michelle Flaherty Friday, Oct 26, 12 @ 10:54 am
Thank goodness we let state taxpayers foot the bill for the sloppy TRS investment work and not our precious local school districts.
Fire,Aim,Ready!
Comment by CircularFiringSquad Friday, Oct 26, 12 @ 10:56 am
I fear we’ll see more of this with pension plans. With assumed rates of return still fairly high, I suspect fund managers are being more risky, which means more volatile returns.
Comment by Robert the Bruce Friday, Oct 26, 12 @ 11:08 am
It can happen.
The DJIA was at about 12,400 at the beginning of July 2011, experienced some declines then slugged its way back to about 12,600 at the end of June 2012.
The previous fiscal, the DJIA gained nearly 3000 points.
If you want high rewards, you have to take high risks. Probably not a good idea with pension funds.
Comment by wordslinger Friday, Oct 26, 12 @ 11:08 am
===The return was sharply lower than the 23.6 percent the system earned in 2011.===
Possible positive spin:
“But is you average the two years … you get 12%, which is fabulous …my congratualtions!”
“Well, a poitive return is a positve return.”
“Please note, that all that profit is going straight back in the fund so we’re going to be making more money off the 0.76% we just made, which is nice.”
“Look, we don’t want to sugar coat it. It is lower than expected, okay?”
Comment by Oswego Willy Friday, Oct 26, 12 @ 11:10 am
Investments go up and down, this is not news. TRS isn’t day trading their portfolio, they’ve got an asset allocation designed to weather the ups and downs over the long term and provide long term investment growth. Both the Dow and the S&P were up a little over 1% for that same period so it’s not like there was a lot of money to be made in the market at that time. Ask them what their 30 year return is, I’m guessing that number will give everyone a lot more comfort.
Comment by The Captain Friday, Oct 26, 12 @ 11:14 am
I wonder if the shifting of the FY either picks up gains between July 1 and Sept 30 of 2012 or it drops losses from July 1 through Sept 30 of 2011. Me thinks its the latter since the dow lost 1,600 points in that 3 month span…
Comment by Just a Guy Friday, Oct 26, 12 @ 11:22 am
How does the TRS return compare to other major pension systems, over the same time period? It could be it is well within those norms. It would be silly to conclude this is a trend or that TRS did a poor job from this number in isolation.
Comment by Archimedes Friday, Oct 26, 12 @ 11:25 am
Actually, a 12.18% average return over 2 years is pretty good. I could live with that in my portfolio. But erratic returns are not suitable for plans which must pay out to annuitants every month. Also, the plan may have front loaded returns into 2011 via futures or options contracts. Month by month figures on returns and payouts would be helpful for voters to keep track of what’s going on in the over 600 state and local government employee pensions in Illinois. But that kind of tranparency is a fantasy.
Comment by Cook County Commoner Friday, Oct 26, 12 @ 11:54 am
Returns on conservatively invested money are not providing satisfying returns for anyone. A small gain is better than a loss any day.
The fed pumping is creating a return issue for all conservative funds.
Comment by Plutocrat03 Friday, Oct 26, 12 @ 12:01 pm
I put half of my savings in a total stock market index fund and half in a total bond index fund. Each and every year I rebalance to maintain the 50 50 ratio that provides a sell off of the one that performed better the prior year. Ill be more than willing to bet my returns beat that of the pension system and my costs are practically nothing.
Why can’t things just be done the simple way?
Comment by Yahoooz Friday, Oct 26, 12 @ 12:03 pm
Remember, the Federal Reserve has made it impossible to make any return with cash. You have to take risk if you want to make any money. Unfortunately, that means you could just as easily lose money this way.
Comment by RetiredStateEmployee Friday, Oct 26, 12 @ 12:03 pm
Better than many CDs!!
I say an attaboy is in order for not losing money in these exceptionally volitile times.
Wall street investing can be very risky and high risk is not where you put pension money…at least not at this juncture. When the overall economy improves there will be room for some risk.
Makes one wonder where the Million Dollar Baby producer is on his investments?
Comment by Sunshine Friday, Oct 26, 12 @ 12:07 pm
What is the condition of the unfunded liability? That is the number to know. If it improved, great. If it didn’t improve, not so great.
Comment by Downstater Friday, Oct 26, 12 @ 12:29 pm
===Actually, a 12.18% average return over 2 years is pretty good.===
Thus my snark, about how it wil be spun, for a “good thing” …
(lol) Please, don’t think I was helping the cause … this might be a time my snark backfired against me!
Comment by Oswego Willy Friday, Oct 26, 12 @ 12:31 pm
–Ill be more than willing to bet my returns beat that of the pension system and my costs are practically nothing.–
How’d you do in the stock market between July 1, 2011 and June 30, 2012?
Comment by wordslinger Friday, Oct 26, 12 @ 12:35 pm
You almost have to try to produce results that dismal. Sure, put Social Security in a system like this. Yikes.
Comment by Mouthy Friday, Oct 26, 12 @ 12:41 pm
The FOMC recently announced that rock bottom interest rates will probably continue into mid-2015. Obviously, there are no white knights charging to the rescue of the US or global economy. As a result, pension plans will be taking greater and greater risks to earn more and more money for an increasing retiree population.
An interesting analysis we’ll never see is how much pressure 3% COLAs put on pension funds in addition to the demograhically certain increased number of annuitants via the baby boomers. No doubt the pension plans did not prepare for this sign up spike which will last for a decade or two.
It’s probably much, much worse than we’re being told, but since the plans will not fully open their books to independent auditors and allow independent daily oversight, we’ll just have to decide what to do by trusting our leadership with our tax dollars. That worked out so well in the past.
Comment by Cook County Commoner Friday, Oct 26, 12 @ 12:44 pm
Well for the Period June 30 2011 to June 30 2012 the S&P500 was at 1,307 in 2011 and 1,362 on June 30 2012 for about a 4% gain in the same time period.
Comment by OneMan Friday, Oct 26, 12 @ 12:52 pm
>How’d you do in the stock market between July 1, 2011 and June 30, 2012
Comment by Yahoooz Friday, Oct 26, 12 @ 1:00 pm
Whoops I dont know why my post didnt post but During that time frame the stock portion went down. You know this or you would not have cherry picked that time period. However as yu will note in my earlier post I put half into the bond index that provided a nice 10% price rise and 5% interest earnings over the same period. remeber too I also stated I rebalance allowing a reallocation from the stronger index into the weaker one. Here is a nice chart comparing the two. Ill bet 99% of the so called experts can not beat this approach consistently on a long term basis
http://finance.yahoo.com/q/bc?s=VGTSX&t=my&l=on&z=l&q=l&c=vbmfx
Comment by Yahoooz Friday, Oct 26, 12 @ 1:04 pm
Pension Funding Level:
Teachers Retirement System (TRS) - 46.1%
Note: Under new rules (GASB Statement 67; effective 06.15.2013) approved by the Governmental Accounting Standards Board (GASB) in June 2012, all units of state and local government (Illinois included) will be required to report liabilities using “market rates,” which are typically closer to 5 percent or less.
Although this change will no doubt have a positive impact by more accurately estimating the level of state liabilities, in many cases itt reveals an even more precarious financial position
Here’s the link to the overall report for just the State of Illinois:
http://www.statebudgetcrisis.org/wpcms/wp-content/images/2012-10-12-Illinois-Report-Final-2.pdf
This is just the Illinois section of the report. Looks like the state specific portions of the report just came out around October 12, 2012.
Please note the Co-Chairs and Members listed on page 5 of the .pdf
Btw, I wouldn’t read the report if you are already seriously depressed about the financial picture here in Illinois. It’s not a pretty picture.
Comment by Judgment Day Friday, Oct 26, 12 @ 2:17 pm
Not to say I told you so- Now we know why it took so long for TRS to come clean- their performance was horrible- The most important thing is how they ranked compared to their peer group which is pretty God awful- Most large pension systems and the larger University endowments left TRS in the dust- the reason for this performance is that Stan Rupnik(CIO) has convinced the Board along with their investment consultants that TRS needed to dramatically increase their allocation to the Hedge Funds which most smart money managers have moved away from in droves-They may not know it but the Board is now managing the Fund not only for the participants but unfortunately also the Taxpayers of Illinois who now have as great an interest in seeing better performance as do the beneficiaries- With performance like this we need legislative oversight and a change in the management of the Fund- there is no excuse for sub one percent returns given what was better S&P performance over the same time period
Comment by Sue Friday, Oct 26, 12 @ 2:32 pm
I recently read a report on the year-to-year investment performance of the state pension systems, and it was overall better than expected. The issue is not a snapshot of performance on a single day, but longterm average results. (That’s why we have smoothing.)
Comment by soccermom Friday, Oct 26, 12 @ 2:33 pm
Soccer Mom- BUT they announced with the returns that for the past 20 years they only achieved 7.7 percent which was below their actuarial hurdle of 8.5 over the same time period- you can’t put lipstick on the performance- it is not defensible- Also- they have also said that their investment expense was “only one dollar for every 10 dollars in investment returns ” over an extended time period- paying expenses of that magnitude isn’t rational- in any event the accepted methodology is expenses per dollar invested not for dollars of return
Comment by Sue Friday, Oct 26, 12 @ 2:59 pm
I wish the only reason the TRS was in bad shape was due to poor returns on investments. Unfortunately, when 60% of the money that’s supposed to be in it was never deposited by our highly moral legislators that cannot be overlooked. If TRS is missing money, the biggest reason is not one year’s poor investment returns.
Comment by geronimo Friday, Oct 26, 12 @ 3:02 pm
Sue — I didn’t realize their overhead was that high. As to the 20-year lookback, that does include some horrific crash years. Previous to the crash, they were doing respectably I think. But you’re right that overhead costs are a big issue.
Comment by soccermom Friday, Oct 26, 12 @ 3:47 pm
Does anyone know yet what SURS or ISBI’s returns were for FY 12- Or is TRS standing by itself with its pants down- TRS didn’t even earn enough this past year to pay for its sacred COLA!!!!!!
Comment by Sue Friday, Oct 26, 12 @ 4:42 pm