Hi Steve, Here's an article that any Cheesehead would like. These guys have averaged a double in value every 5 years or so. Not too bad.
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Wisconsin's pension fund agency lags six of its peers
By KATHLEEN GALLAGHER
of the Journal Sentinel staff
Last Updated: Nov. 10, 2001
The Legislative Audit Bureau report released last week put the State of Wisconsin Investment Board's performance up against six other peers over five and 10 year periods, and the board came in last.
The state investment agency says its dedication to minimizing risk keeps its performance more stable, but sometimes at the expense of higher returns. The audit report, when viewed with those of past years, suggests board managers aren't making asset allocation decisions as well as their peers.
The agency's Fixed Retirement Trust Fund, which holds about 80% of the assets it manages, had an average annual return of 14.7% for the five years ending June 30, 2000, according to the audit report. (edit: I can't wait to see what their report from AFTER June, 2000 looks like!)
That doesn't sound so bad - and it's well above the 8% average annual return the agency needs to meet its benefits obligations to participants.
But six other big pension funds, including the California Public Employees Retirement System, known as CALPERS, and the Minnesota Combined Funds, had better performance, according to the report.
The Wisconsin agency points to a different ranking. The Trust Universe Comparison Service ranks it ahead of the median for one-year and 10-year returns for public funds with assets over $10 billion and slightly below the median for five-year performance as of June 30, 2001, the state board's management said in its audit response.
Performance slipping
One thing is clear in this statistician's paradise: There are a lot of ways to slice and dice investment performance.
How does the average person sort through it all?
The state auditor's reports say comparing the Wisconsin board to other pension funds isn't perfect because its peers may have different asset mixes, investment styles, tolerable risk levels and statutory or other restrictions on their performance.
But even agency audits over the 1990s show its performance has been slipping in relation to its peers.
"The ultimate measure of accountability is their rate of return," says Janice Mueller, state auditor.
The investment board says it develops its asset mix with help from an outside consultant to match the liabilities it expects to have to pay to plan participants at certain points in time.
"From that targeted asset mix we build the benchmark, so the benchmark is matched to the strategic target asset mix that we've adopted as our asset mix objective," says Ron Mensink, its quantitative analytics director.
On a risk-adjusted basis, it is providing more return for less risk vs. its benchmarks, he says.
EDIT: I wonder if he uses AIM and ROCAR? :-)
That leads to the reasonable question: How good are the assumptions that underlay the state board's performance?
"The auditor should decide whether the asset allocation and the assumptions that were used to arrive at that asset allocation were appropriate," says Robert J. Bukowski, senior consultant at Alpha Investment Consulting Group.
A report issued by Mueller's office in 1999 showed the biggest difference between Wisconsin's asset allocation mix and that of other pension funds since 1995 is that the Wisconsin board has been allocating more money to international investments and less to U.S. stocks
Investment board Executive Director Patricia Lipton said in her audit response that the public funds the state agency was compared with all had much bigger allocations in U.S. stocks.
"In an unprecedented bull market for domestic stocks, SWIB concluded that it was too risky to carry too large an exposure to them," Lipton wrote.
Tough questions
Every pension plan eventually faces the same conundrum. If the plan has more money than it needs to meet imminent payments, does it invest it aggressively in the hopes of getting a much fatter return or conservatively so you have less risk of losing what you've got?
It's toughest for state plans such as Wisconsin's. If they invest aggressively and do it well, they'll save taxpayers lots of money. But if they do it poorly, taxpayers could be out some money.
Overall, the Wisconsin agency has chosen to take less risk, its executives say. (It may have taken more risk with investments in South Korea, for example, but those investments of about $120 million are a tiny fraction of the $63 billion it manages, so they didn't materially increase overall portfolio risk.)
To see the state auditor's complete report, go to www.legis.state.wi.us/lab.
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Best regards, Tom |
