A return fiscal year for the ages

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The returns of stock indices around the world have had an extraordinary year. The MSCI Emerging Markets Index returned 41.3%, the MSCI ACWI Index returned 39.9% and the MSCI EAFE Index returned 33%.

Kevin M. Leonard, partner and head of the public funds advisory practice at NEPC LLC, Boston, said in a phone interview that last year’s ROIs weren’t so much about alpha.

“I think in general, in high terms, it’s really a beta discussion for last year,” Mr. Leonard said. “Of course, if you had more stocks, you did better. If you had a little more growth, if you had a little more active management, that’s really a smaller part of the discussion.

Leonard also noted that public pension funds with more mature private equity programs have also performed well for this asset class.

Overall, according to the consultants, the more risk you take, the better your plan.

Texas County & District Retirement System, Austin, led all registered public pension plans with a net return of 33.7% for the year ended June 30, exceeding its benchmark return of 31.1%.

The pension fund’s actual allocations of $ 40.7 billion to public and private stocks were 32.1% and 21.7% respectively as of June 30 and yielded 42.7% and 55.4% respectively. The financial year of the pension fund ends on 31 December.

The San Bernardino County Employees Retirement Association (Calif.) Posted the highest net return among pension funds with years ended June 30 at a net rate of 33.3%, leading its return policy benchmark of 19.7%. This is an all-time record for the $ 13.4 billion pension fund.

The actual allocation of this pension fund was dominated by 20% international equities, 18.1% private equities and 16.9% domestic equities.

Thomas Aaron, vice president and senior analyst at Moody’s Investors Service Inc., New York, said in a telephone interview that the strong returns on investment for the year were good news for government sponsors.

“From a short-term perspective, we see this as extremely positive for governments and their pension funds,” said Aaron.

Mr. Aaron said the bumper year has certainly improved funding levels and cash flow, which will greatly benefit governments that have come under increased pressure to increase contribution requirements over the past decade.

Since the market bottomed due to the economic impact of the COVID-19 pandemic, funding levels have increased thanks to the market recovery, resulting in potential contribution relief.

As of June 30, the funding ratio of the 100 largest U.S. public pension plans was 82.6%, down from 71.2% a year earlier and 66% at the market low as of March 31, 2020, according to estimates by Milliman Inc.


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