State Finance Board lowers new year’s return goal to 2%

The state Board of Finance on Tuesday agreed to have a goal of seeking a 2% return on state investments during fiscal 2020, slightly lowering expectations from returns earned in the previous year.

Larry Walther, the director of the Department of Finance and Administration and a member of the Finance Board, recommended lowering the target for the fiscal year after offering the explanation that “the market is changing.”

The board had set a target of a 2.5% return on investments during fiscal 2019, which ended June 30. State Treasurer Dennis Milligan said the investment return had exceeded that target last year.

The treasurer’s office reported to the Board of Finance that it had investment revenue of nearly $117 million from all sources in fiscal 2019. Stacy Peterson, a spokeswoman for the treasurer, said that last year’s revenue was a record for the state treasury.

The state will likely see “fewer chances” for that level of return in 2020, Walther said.

The Board of Finance approved the new target with a unanimous vote.

The target rate of return applies to the state treasury’s general investment portfolio, said the treasurer’s spokeswoman. That fund is worth about $4 billion, she said.

After approving the new target rate, the Finance Board heard a report from two financial analysts at the University of Arkansas at Little Rock who had been tasked by the board with reviewing commercial paper concentrations within the treasury’s general portfolio, as well as its money management trust portfolio.

A summary of that report found that the treasury had between $600 million and $1.5 billion in economic exposure to two different single issuers. The report recommended tighter restrictions on commercial paper investments as a result.

The board adopted such changes to the treasury’s investment policies, after Walther stated that the treasury should be able to meet its 2% target returns with the adjustments made.