The Arkansas Teacher Retirement System’s investments increased in value by $862 million to $14.1 billion in the quarter that ended Dec. 31 largely because of a surging stock market, an investment consultant told the system’s trustees Monday.
The trustees also approved hiring several investment managers to invest more than $1.4 billion in system funds, mostly in global stocks and bonds.
They also learned the system has sold a downtown Little Rock building - formerly owned by the Rose Law Firm - for $850,000 to a Little Rock businessman.
The teacher retirement system is the state government’s largest retirement system.
The 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 system actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich.
The trustees voted to continue charging system employers, which are largely school districts, the equivalent of 14 percent of their employee payroll in the fiscal year starting July 1. Act 1446 of 2013 gives the trustees authority to increase the 14 percent rate starting July 1, 2015, by 0.25 of a percentage point a year up to a maximum of 15 percent under certain circumstances. But any rate increase would have to be paid from funds appropriated to the state Department of Education under Act 1399 of 2013.
The system’s employers pay about $400 million a year into the system, while the system’s members pay about $120 million a year, according to system records. Act 602 of 2013 gives the trustees authority to increase the rate charged to working members from 6 percent up to a maximum of 7 percent under certain circumstances.
The system’s investments increased in value from to $14.11 billion from $13.249 billion the previous quarter, the Chicago-based investment consultant Hewitt EnnisKnupp said in a written report to the system’s trustees.
The system’s overall investment return last quarter was 6 percent, which ranked in the top 6 percent of the nation’s public pension funds, the consultant said.
The return on the system’s U.S. stock market investments last quarter was 9.3 percent, and the investments totaled $3.88 billion Dec. 31, Hewitt EnnisKnupp said. The investment return on the system’s global stock market investments last quarter was 7.9 percent, and the investments totaled $4.61 billion on Dec. 31.
The investment return on the system’s bond investments last quarter was 1 percent, and the investments totaled $2.3 billion Dec. 31, Hewitt EnnisKnupp said.
The system’s other investments include private equity, real estate, timber and agriculture.
Katie Rizzo, a consultant for Hewitt EnnisKnupp, said the system’s investment gains have largely stemmed from the system’s stock market investments. The system’s investment managers also have performed well, she said.
The system’s goal is to have a projected 30-year period for paying off its unfunded liabilities, and rising stock markets in fiscal 2013 helped the system cut this period from more than 100 years on June 30, 2012, to 70 years on June 30, Gabriel, Roeder, Smith & Co., reported in December. The system’s unfunded liabilities also declined from $4.66 billion June 30, 2012, to $4.47 billion June 30. Unfunded liabilities are the amount by which a system’s liabilities exceed an actuarial value of the system’s assets.
The system’s trustees Monday approved hiring Boston-based Wellington Management Co. to manage up to $300 million in bond investments, and Columbus, Ind.-based Reams Asset Management to manage up to $300 million in bond investments.
In December, they fired Pasadena, Calif.-based bond investment manager Western Asset Management Co., which managed about $750 million for the system.
System Executive Director George Hopkins said Monday that the system is increasing the funds allocated to two existing bond managers with the $150 million of Western’s old funds that remained after the hiring of Wellington and Reams. Boston-based State Street Global Advisors’ funds will increase by $100 million and New York-based Black-Rock’s funds by $50 million.
The trustees Monday approved hiring Boston-based Grantham, Mayo, Van Otterloo & Co. to manage up to $350 million in global equity investments and Chicago-based Harris Associates to manage up to $350 million in global stock market investments. The funds were freed up after they fired Wellington as a global stock manager and London-based Bedlam Asset Management withdrew as a global stock manager last year.
Also Monday, the trustees signed off on investing up to $50 million in the Greenwich, Conn.-based First Reserve Energy Infrastructure Fund II, up to $50 million in the Paris-based Atin Infrastructure Partners II, up to $25 million in private equity with Minneapolis-based Castlelake III and up to $25 million in New York-based Sycamore Partners II.
Additionally, Hopkins told the trustees that the system successfully sold and closed on its 720 W. Third St. property Jan. 27.
The former Rose Law Firm building was appraised for $840,000 and sold for $850,000, Hopkins said.
Afterward, the system’s director of real assets, Jerry Meyer, said the property was sold to Little Rock businessman Ken Shollmier’s Shollmier LLC.
Arkansas, Pages 9 on 02/18/2014