The Arkansas Public Employees Retirement System's investments dropped by $516.3 million in value to $7.3 billion during "a rough quarter" for stock market investments but has since bounced back, system officials told the system's board of trustees Wednesday.
The system's executive director, Gail Stone, said the system's investments now "are probably flat, which is pretty good" for fiscal 2016, which started July 1, with the stock markets rebounding since the quarter ended Sept. 30. The system's investments were valued at $7.65 billion through Oct. 31, she said.
The system is state government's second-largest retirement system, with more than 75,000 working and retired members. The largest system is the Arkansas Teacher Retirement System, with more than 100,000 working and retired members. That system hasn't yet reported its investment performance for the last quarter.
The Arkansas Public Employees Retirement System's domestic stock market investments fell in value by $456 million to $2.84 billion in the quarter ending Sept. 30, while the system's foreign stock market investments dropped in value by $230 million to $1.72 billion, investment consultant Callan Associates of Chicago said in a written report to the trustees.
Last quarter was "a rough quarter for equities," with U.S. stocks having their first negative quarter since 2012 and "a huge sell-off" in China's stock market due to concerns about its slowing economic growth, said Ryan Ball of Callan Associates.
The system's fixed-income investments slipped by $1.6 million in value to $1.23 billion last quarter, while the system's diversified-strategies investments dipped in value by nearly $10 million to $355 million, the consultant said. The system's energy, real estate and timber investments increased in value by $186 million to $1.1 billion after the system invested $206 million with the Chicago-based Heitman Real Estate Trust LP. It also has $36 million in additional funds.
The system's investment return last quarter was minus 5.99 percent to rank behind 89 percent of the nation's public pension systems, Callan Associates reported. Its investment return in the past year was minus 1.46 percent, ranking behind 72 percent of the public pension systems.
Its investment return for the past three years averaged 8.06 percent a year, ranking among the top 20 percent of the nation's public pension systems, while the return for the past five years averaged 8.77 percent a year, ranking among the top 11 percent of public pension systems, according to Callan Associates.
The trustees subsequently decided to invest $50 million in a real estate investment fund managed by TA Realty, which has offices in Boston; Newport Beach, Calif.; and Palm Beach Gardens, Fla.
They also decided to shift money invested in domestic stocks in the State Street Global Advisors Index Plus Edge Fund to the Mellon S&P 500 Index Fund. Ball said State Street Global Advisors recently notified the system that the system is now the only investor in that strategy, and the system had about $75.9 million invested in that fund on Sept. 30.
In addition, the trustees delayed until their February meeting a decision about whether to issue a request for proposals for an investment manager for the system's Arkansas stock portfolio. The system would be required to hire the low-cost bidder from those who submit bids if the trustees decide to issue a request for proposals, Stone said.
The trustees' decision came in a voice vote with state Auditor Andrea Lea and Jim Harris, chief of staff for state Treasurer Dennis Milligan, dissenting.
Horrell Capital Management of Little Rock managed $89.2 million in investments in Arkansas companies as of Sept. 30, according to Callan Associates.
Ellis Sloan of Searcy, portfolio manager for Kernodle and Katon Tax & Asset Management Group, told the trustees that he created the Arkansas stock index fund for the system and managed it for 81/2 years before he departed Horrell Capital Management for his current employer in May. He asked the trustees to conduct an investment manager search for its Arkansas stock portfolio.
But the system's chief investment officer, Carlos Borromeo, said he's comfortable with Horrell Capital Management continuing to manage the system's Arkansas stock index fund, and he doesn't have a compelling reason for the system to change investment managers.
State and local governments paid $262.7 million into the system, and their employees contributed $51.5 million in fiscal 2015, according to the system.
The system includes 45,722 working members with an average salary of $35,979 in fiscal 2015 and 31,530 retired members with an average annual benefit of $13,788 in fiscal 2015, according to system actuary Gabriel, Roeder, Smith & Co.
The system's unfunded liabilities totaled $1.943 billion on June 30 with a projected payoff period of 25 years, the actuary reported. Actuaries often compare unfunded liabilities to a mortgage on a house. Unfunded liabilities are the amount by which the system's liabilities exceed an actuarial value of the system's assets.
Metro on 11/19/2015