Retiree system invests $180M

The Arkansas Teacher Retirement System’s trustees on Monday authorized up to $180 million in new private equity and real estate investments to help further diversify the system’s portfolio.

The system’s investments totaled $16.5 billion as of Sept. 30 after earning a return of 3.8 percent last quarter, the system’s investment consultant told the trustees.

And the system’s actuary reported that the system’s projected payoff period for its unfunded liabilities totaling $4.1 billion is 29 years as of June 30 — which is the same projected payoff period as the system’s June 30, 2016, actuarial report. Actuaries often compare unfunded liabilities to a mortgage on a home.

Officials for actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich., said the projected payoff period remained the same largely because the trustees approved about a dozen measures aimed at cutting costs and raising more money during the next five years. Those changes were made to help make up for cutting the system’s projected annual investment return from 8 percent to 7.5 percent — which the actuary called reasonable and system officials deemed conservative — and approving new mortality tables that project that system members will live longer.

“The system is 80 percent funded and has realistic assumptions, and so from our perspective, we are very pleased and applaud you for what you have done,” Gabriel actuary Judith Kermans told the trustees.

The Arkansas Teacher Retirement System is state government’s largest retirement system with more than 110,000 working and retired members.

Its employers paid $414.5 million into the system, while members contributed $132.1

million in fiscal 2017 that ended June 30, according to system officials.

The system included 68,337 working members with an average age of 44.3 years, average service of 10.2 years and average annual earnings of $37,707. It also has 3,811 working members who are deferred retirement-plan participants with a total payroll of $237 million (an average of $62,188 a year) as of June 30, according to Gabriel, Roeder, Smith.

The system included 45,092 retired members with total retirement benefits of $1.045 billion, an average of about $23,174 a year as of June 30, Gabriel said.

Its investments increased in value last quarter by $392 million to $16.51 billion of Sept. 30, according to its consultant, Aon Hewitt Investment Consulting. The return was 3.8 percent last quarter to rank among the top 31 percent of public pension systems with more than $1 billion in investments, Aon Hewitt reported.

The investment return for the year that ended Sept. 30 was 14.6 percent, to rank among the top 5 percent of these public pension systems. For the five-year period that ended Sept. 30, the return was 10.4 percent to rank among

the top 1 percent of the systems, Aon Hewitt said.

The return for the 10-year period that ended Sept. 30 was 6.1 percent, ranking among the top 7 percent of these public pension systems, the consultant said. The 10-year period included the 2008-09 recession in which the value of stock market investments plummeted. Since 1986, the system’s return has averaged 8.6 percent a year.

The system’s private equity investments authorized by the trustees include up to $30 million in Siris Partners IV, a buyout fund managed by Siris Capital and focused on investments in technology and telecommunications companies. Two other funds received $25 million each: the Thomas Bravo Discover II, a buyout fund managed by Thomas Bravo based in Chicago and San Francisco and focused on investments in software companies; and Sycamore Partners III, a turnaround fund managed by Sycamore Partners based in New York that invests in retail and consumer companies.

The other private equity investments authorized Monday include up to $25 million apiece in the Franklin Park Venture Fund Series 2018, a fund managed by Franklin Park that invests in venture

capital funds; the Franklin Park International Fund 2018, which invests in international funds; and the Arkansas Teacher Retirement System/ Franklin Park Private Equity Fund, a co-investment and next generation managers fund. Franklin Park Associates is the system’s private equity consultant based in Bala Cynwyd, Pa.

The trustees also authorized an investment of up to $25 million in the Torchlight Debt Opportunity Fund VI, an opportunistic real estate fund focused on high-yield debt investments in both public and private markets and managed by Torchlight Investors of New York.