Pension fund rises to $15B

Teacher pot adds quarter’s $313M

The Arkansas Teacher Retirement System's investments increased by $313 million in value to $15.01 billion in the past quarter, a consultant told the system's board of trustees Monday.

The system's investment return of 2.9 percent in the quarter ranked among the top 6 percent of the nation's public pension systems, said Katie Comstock of Chicago-based Aon Hewitt Investment Consulting.

In April, the system's investments increased in value to $15.07 billion, according to a preliminary report from Aon Hewitt.

In addition to hearing about investment returns, the trustees also voted to authorize up to $105 million in new investments in real estate and private-equity funds while deciding to terminate its investment of about $54 million in a real estate fund.

The trustees also elected Trustee Jeff Stubblefield of Charleston to replace Trustee Richard Abernathy of Benton as the board's chairman, starting July 1.

Stubblefield is superintendent of the Charleston School District. Abernathy is the executive director of the Arkansas Association of Educational Administrators.

The teacher-retirement system is state government's largest, with more than 100,000 working and retired members.

The system's global stock-market investments reached $4.9 billion at the end of the past quarter after earning an investment return of 3.5 percent, and the system's domestic stock-market investments totaled $4.04 billion after earning an investment return of 3.4 percent, Aon Hewitt said in a written report to the board of trustees.

The system's bond investments totaled $2.37 billion at end of the quarter after earning an investment return of 1.4 percent, the investment consulting firm said.

The firm said the system's investment return is 8.3 percent for the year that ended March 31, ranking among the top 8 percent of the nation's public pension systems. It averaged 10.2 percent during the past five years, ranking among the top 11 percent of those systems, and 7.7 percent during the past 10 years, ranking among the top 2 percent.

P.J. Kelly of Aon Hewitt said in an interview that the system may have higher returns than other public pension systems because it has more investments in the domestic stock market and fewer investments in hedge funds than its peers.

Nonetheless, the consultants predict that foreign stocks will be outperforming U.S. stocks, at least in the next three to four years.

With the aim of increasing its investments in foreign stock markets , the trustees decided Monday to merge the system's U.S. and global stock-market asset categories into a global stock-market asset category and then voted to authorize the reallocation of $550 million in two U.S. stock-market funds into a global stock-market fund.

The system's targets had been 30 percent of its investments in global stock markets and 20 percent in U.S. stock markets, and now its target is 50 percent in global stock markets.

Kelly said investments in both U.S. companies and foreign companies count as global stock-market investments, and the system's stock-market investments are overweighted to U.S. stocks compared with global stocks.

"We are hoping to get one day to 50 percent" in non-U.S. stocks, Kelly told the system's board of trustees.

The growth prospects for stock markets are better in Europe, Asia and Japan than in the United States during the next three to five years, Kelly said. The system will take advantage of its existing investment managers to gradually invest more stocks in international companies "so we aren't turning on the dime here," he said.

As the meeting continued, the trustees voted to shift $550 million in two domestic stock-market funds managed by New York-based Allianz Global Investors to a new global stock-market fund managed by Allianz and retain $100 million in a domestic stock-market fund managed by Allianz.

The trustees decided to authorize investments of up to $30 million in LongWharf Real Estate Partners V -- a real estate fund managed by the Boston-based company -- and up to $25 million in Torchlight Debt Opportunity Fund -- a real state fund managed by New York-based Torchlight Investors LLC. They also approved an investment of up to $25 million in Westbrook Real Estate Fund X, managed by New York-based Westbrook Partners.

The Arkansas Teacher Retirement System board also voted to terminate an investment of $54 million in the New York-based JP Morgan Special Situations Property Fund and reallocate the money toward other real estate funds.

In addition, the trustees authorized an investment of up to $25 million in the Castlelake IV private-equity fund, managed by Minneapolis- base Castlelake LP, which invests in debt and distressed assets, though the trustees were advised that the system may not follow through with the investment.

The teacher-retirement system includes 70,225 working members with an average age of 44.7 years, an average service of 10.2 years and an average salary of $35,673, system actuary Gabriel, Roder, Smith & Co. reported. There are also 38,478 retired members with retirement benefits totaling $822 million (an average annual pension of $21,362), the actuarial firm reported.

The system has 4,127 working members in deferred retirement plans with an annual combined payroll of $253 million.

School districts and other system employers paid $405 million into the system, while system members contributed $123.5 million in fiscal 2014.

Metro on 06/02/2015

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