The Arkansas Teacher Retirement System will invest up to $50 million in an infrastructure fund managed by New York-based Kolhberg Kravis Roberts & Co., the system's trustees decided Monday. The fund could invest in projects such as alternative energy generation, parking garages or tunnel projects.
The trustees also learned the system's investment return in the fiscal year that ended June 30 is about 19 percent based on a preliminary estimate from investment consultant Hewitt Ennis Knupp of Chicago.
The final number won't be known until late September or early October after the values for the system's private equity, real estate, agriculture, timber and infrastructure investments are available, said P.J. Kelly of Hewitt Ennis Knupp.
System Executive Director George Hopkins informed trustees that the system's estimated number of years to pay back its unfunded liabilities may have dropped from about 70 years to 39 years as of June 30.
Unfunded liabilities are the amount by which a system's liabilities exceed an actuarial value of the system's assets.
The system aims to have a payback period for unfunded liabilities of 30 years or less. The system's actuary, Gabriel, Roeder, Smith & Co. of Southfield-Mich., will produce the system's final actuarial report for fiscal 2014 later this year.
The system is the state government's largest retirement system, with more than 100,000 working and retired members and investments valued at more than $14 billion.
The trustees approved investing up to $50 million in New York firm's KKR Global Infrastructure Investors II LP fund.
The company started as a private equity investment firm in 1976 and started its first dedicated infrastructure fund in 2008, according to a written system staff report.
The firm is aiming to get $2 billion in investments for this latest infrastructure fund and an annual investment return of 10 percent to 15 percent, Hewitt Ennis Knupp reported.
The fund "has a broad investment mandate across infrastructure sectors, including: midstream energy; alternative energy; long-term contracted ... electricity generation; regulated electric and gas utilities; district heating and cooling; water and waste water[;] transportation (e.g. parking, airports, ports, roads, bridges, tunnels, railway lines and mass transit structures); social infrastructure (e.g. schools, public healthcare facilities and government housing); and communications," Hewitt Ennis Knupp wrote.
Hopkins said the investment of up to $50 million would help the system further diversify its investment portfolio.
"If you live by the markets, you take hits from the markets," he said.
The system's investments were valued at $14.41 billion through the end of May, according to a preliminary report.
"We think once we get those final numbers from private equity and real assets [including real state, timber, agriculture and infrastructure investments] that we'll probably, hopefully get to 20 percent," Kelly said. "But we'll just have to wait and see how that goes."
The teacher-retirement system includes 70,660 working members with an annual average salary of $34,920; 4,265 deferred-retirement participants with an annual average salary of $60,927; and 36,254 retired members with an average annual pension of $21,067, according to Gabriel, Roeder, Smith & Co. of Southfield, Mich.
The system's unfunded liabilities totaled $4.47 billion as of June 30, 2013.
The trustees also authorized staff to take steps to protect system retirees from predatory pension advances.
There is a growing concern in other states about companies that provide retirees with an advance based on future monthly retirement payments, according to a system staff report.
The interest rate on these advances often can exceed 100 percent and typically vary from 25 percent to 90 percent, the report said. The targeted groups are elderly and low-income retirees, the report said.
Missouri is the first state to outlaw pension advances, and the federal government through the Government Accountability Office has written reports on the predatory aspects of these companies, the report said.
"We are now ready to talk to other state entities to discuss how to draft legislation," Hopkins said after the trustees' meeting. "With costs that equate to 20 percent to 80 percent interest rate equivalents, the issue is either to limit the advances or perhaps outlaw them like in Missouri. The final goal would be to protect ATRS members from predatory practices seen in other states."
Metro on 07/29/2014