Teacher plan investments jump in value

Pension system consultant reports $4.5B fiscal ’21 gain

Buoyed by soaring stock markets, the Arkansas Teacher Retirement System’s investments gained $4.5 billion in value last fiscal year, the system’s investment consultant reported on Monday.

The system’s investment return was 31.9% in fiscal 2021, which ended June 30, to rank among the top 5% of the nation’s large public pension systems, P.J. Kelly of Chicago-based Aon Hewitt Investment Consulting told the system’s board of trustees.

The investment return for fiscal 2021 is a record for the system, exceeding the previous record of 22.6% in fiscal 2011, system Executive Director Clint Rhoden said. The system’s investments are now valued at roughly $21 billion, he said.

The record return comes on the heels of those investments dropping by $921 million in value, to $16.6 billion, in fiscal 2020.

The fiscal 2021 gain prompted the system’s trustees to approve the payment of a 6% interest rate on the accounts of the system’s regular deferred retirement plan participants in fiscal 2022, which started July 1, and a 7.5% interest rate on the accounts of the post 10-year deterred retirement plan participants.

In a busy day with investments on Monday, the trustees voted to redeem and redeploy some investments as well as approve new ones, authorizing more than $500 million in investments aimed at further diversifying the system’s portfolio.

The Arkansas Teacher Retirement System is state government’s largest retirement system, with more than 100,000 working and retired members. The system’s target investment return is 7.5% a year.

During the past five fiscal years, the system’s investment return has averaged 12.2 % a year, ranking in the top 7% of the nation’s large public pension systems, Aon Hewitt Investment Consulting reported.

In the past 10 fiscal years, the system’s return has averaged 9.6% a year to rank in the top nine of the nation’s large public pension systems, according to the firm.

In fiscal 2021, the teacher retirement system’s stock market investments earned returns of 47.4% to reach $12.51 billion on June 30, according to Aon Hewitt.

The system’s private equity investments posted a return of 33.3% in fiscal 2021 to end the fiscal year valued at $2.68 billion, and the system’s bond investments recorded a return of 3.1% to reach $2.64 billion on June 30, the consultant reported.

The system’s real estate investments earned a return of 0.8% in fiscal 2021, ending the year valued at $1.36 billion. The system’s opportunistic/alternative investments recorded a return of 10.4% to reach $938.2 million, Aon Hewitt reported.

The system’s infrastructure investments posted a return of 21.2% in fiscal 2021, concluding the year valued at $327.7 million, and the system’s timber investments earned a return of 4.9% to reach $302.6 million, according to the consultant. The system’s agriculture investments recorded a return of 6% in fiscal 2021 to end valued at $213.1 million.

In fiscal 2021, employers paid $451.2 million into the system at a rate of 14.5% of employee payroll, while working members contributed $165.6 million at a rate of 6.5% of their salaries, Rhoden said after the trustees’ meeting.

In fiscal 2022, the employer rate is 14.75% of payroll and the employee rate is 6.75%.

The employer rate was 14% of payroll in fiscal 2019 and is scheduled to reach 15% in fiscal 2023. The employee rate was 6% in fiscal 2019 and is scheduled to reach 7% in fiscal 2023.

These phased-in changes are among several measures the trustees approved in 2017 to raise money and cut costs over seven years in response to the system reducing its target investment return from 8% to 7.5% a year.

The system paid out $1.27 billion in retirement benefits to 52,908 retired members and survivors in fiscal 2021, Rhoden said. That’s an average of about $24,159 per retiree and survivor.

The next actuarial report for the teacher retirement system is expected to be released at the trustees’ meeting in December.

As of June 30, 2020, the system’s liabilities totaled $22.3 billion, and an actuarial value of its assets totaled $18 billion, meaning the system was 81% funded, Gabriel, Roeder, Smith & Co. told the trustees in December.

The unfunded liabilities totaled $4.34 billion, with a projected payoff period of 27 years as of June 30, 2020, according to Gabriel.

Unfunded liabilities are the amount by which the system’s liabilities exceed the actuarial value of its assets. Actuaries often compare the projected payoff period for unfunded liabilities to a mortgage on a home.

INVESTMENTS

The trustees on Monday voted to redeem about $140 million of the system’s holdings of about $280 million in the JP Morgan’s Strategic Property Fund, and then redeploy $70 million in the Morgan Stanley Prime Property Fund, a New York-based diversified real estate fund focused on income-producing properties in primary markets, and the other $70 million in RREEF Core Plus Industrial Fund, a New Yorkbased real state fund specializing in industrial assets.

They also voted to redeem the system’s investments managed by Nephila Rukid Holding Ltd. in order to rebalance the system’s opportunistic/alternative portfolio and add more diversification.

The trustees also voted to authorize the investment of:

■ Up to $95 million in Juniperfus Insurance Opportunity Fund Limited, a fund that invests across insurance-linked securities, including private reinsurance, reassignment of insurance risk to other carriers, catastrophe bonds and other insurance-linked investments. Bermuda-based Pillar Capital Management Limited. is the fund manager.

■ Up to $55 million in LBA Logistics Value Fund IX, an Irvin, Calif.- based real estate fund with the primary purpose of acquiring industrial properties.

■ Up to $50 million in LaSalle Asia Opportunity Fund VI, a Chicago-based opportunistic real estate fund focused on both debt and equity investments in Asia.

■ Up to $50 million in Chatham Asset Private Debt and Strategic Capital Fund III, a Chatham, N.J.-based fund that invests in high-yield bonds, leverage loans and equity on a long and short basis.

■ Up to $40 million in Almanac Realty Securities IX, a New York-based fund that invests in both public and private real estate operating companies.

■ $30 million in Franklin Park Venture Fund XIV, a fund of funds managed by Franklin Park investing in venture capital private equity funds. Franklin Park is the system’s Pennsylvania-based private equity investment manager.

■ $30 million in Franklin Park Corporate Finance Access Fund, a fund of funds managed by Franklin Park investing in smaller boyout, growth and turnaround private equity funds.

■ Up to $30 million in Bison Capital Partners VI, a private equity debt and equity fund focused on hybrid debt and equity investments in smallto middle-market companies. The fund’s principals are based in both Los Angeles and New York.

■ Up to $30 million in Clearlake Capital Partners VII, a Santa Monica, Calif.-based private equity fund that makes opportunistic debt and equity investments in middle-market companies undergoing change and/or in under-served industries or markets in North America.