State retirees’ portfolio grows
System’s investments rise $736M, or 7.98% in quarter
With a rebound in the investment markets, the Arkansas Public Employees Retirement System’s investments gained $736 million in value last quarter to $10.98 billion, an investment consultant reported Wednesday to the system’s board of directors.
The system’s investment return in the quarter that ended Dec. 31 was 7.98%, which ranked higher than the 7.93% median return of similar-sized public retirement systems for the quarter, the system’s investment consultant Callan LLC said in a written report to the board.
Carlos Borromeo, the system’s deputy director of investments and finance, said the stock market took off during the final two months of last quarter with a slowdown in inflation.
The system’s investment return has averaged 9.18% a year during the past five years, 6.91% a year during the past 10 years and 7.24% a year during the past 20 years to rank better than the median of similar-sized public retirement systems, Callan reported. The system’s target investment return is 7.15% a year.
Amy Fecher, the system’s executive director, said the system’s investments were valued at about $11.05 billion as of the close of business Tuesday.
In another action Wednesday, the system’s board of trustees authorized the system’s staff to enter into contingency contracts with nine securities litigation law firms, and set a 3% interest rate on the balances for the system’s deferred retirement plan participants in fiscal year 2025, which starts July 1 and ends June 30, 2025.
In addition, trustees directed Fecher to explore the possibility of extending its existing lease in the Union Plaza building in downtown Little Rock without renewing the lease, to meet with owners of three of the properties that the system is evaluating
for a potential purchase for the system offices, and to report back to trustees with purchase prices to consider. In November, she said the system’s current lease expires June 30, and the system occupies three floors in the Union Plaza building.
According to Callan LLC, the system’s domestic stock market investments increased in value last quarter from $3.87 billion to $4.21 billion and recorded an investment return of 11.87%, while the system’s international stock market investments increased in value from $2.62 billion to $2.77 billion and posted an investment return 10.43%.
The system’s domestic bond investments increased in value last quarter from $1.83 billion to $1.97 billion and recorded an investment return of 7.37%, Callan reported.
Callan reported the system’s real asset investments increased in value last quarter from $1.44 billion to $1.51 billion and posted an investment return of minus 3.3%. The system’s real asset investments include real estate, real estate investment trusts, farmland and timber.
The system’s alternative investments, including hedge fund and private equity investments, increased in value last quarter from $223.6 million to $297.4 million and recorded an investment return of 2.29%, according to Callan.
As of June 30, the system had 43,352 working members with an average salary of $48,724 a year, according to the system’s actuary Gabriel, Roeder, Smith & Co.
The system had 42,276 retired members, including deferred retirement plan participants, with total annual benefits of $703.5 million, or an average of about $16,640 a year, as of June 30, the actuary reported.
There are 1,473 deferred retirement plan members with a total payroll of $103 million, or an average of $69,925 a year, according to the firm.
Gabriel, Roeder, Smith & Co. said the system’s unfunded liabilities total $2.43 billion, based on the system’s actuarial accrued liabilities totaling $13.07 billion and the funding value of the system’s assets totaling $10.64 billion as of June 30. The system’s unfunded liabilities are the amount by which the system’s liabilities outdistanced its assets.
The projected payoff period for most of the system’s unfunded liabilities is 17 years, and the projected payoff period for the rest of the unfunded liabilities is 20 years, the actuary reported. Actuaries often compare the projected payoff period for a retirement system’s unfunded liabilities to a mortgage on the house.
SECURITIES MONITORING FIRMS
The system’s trustees voted Wednesday to authorize staff to enter into contingency contracts with nine securities monitoring law firms after 21 firms responded to a request for qualifications by the system and the system’s staff recommended entering into contingency contracts with nine of the law firms. The board’s investment and finance committee recommended the board follow the system’s staff recommendation.
Securities monitoring firms represent the system in class-action lawsuits over investments. The firms are paid on a contingency fee basis, with payments determined by a judge and coming out of any settlements and awards. Potentially millions of dollars are at stake in large, complex cases that involve many retirement systems.
According to a system list, these nine securities litigation law firms include:
■ Berger Montague.
■ Bernstein, Litowitz Berger & Grossmann.
■ Bleichmar, Fonti & Auld.
■ Cohen Milstein.
■ Kaplan Fox.
■ Labaton Sucharow.
■ Lieff Cabraser Heimann & Bernstein.
■ Rosen Law Firm.
■ Saxena White.
Asked after the board meeting for the basis for recommending these nine firms, Fecher said that system officials reviewed all the responses to ensure they met the minimum qualifications stated in the request for qualifications.
“We considered the size of each firm to build a well-diversified portfolio to include smaller boutique firms, mid-size firms, and larger firms,” she said in a written statement. “We also studied their past cases and areas of expertise. Of those firms that had previously represented APERS, we looked at the frequency of outreach and cases presented for lead plaintiff status to APERS. Considering these factors, a list of nine firms was recommended to and approved by the Board of Trustees.”
The system currently has 18 security litigation law firms, according to a list provided by the system’s staff. In November 2019, the system’s trustees voted to contract with all 18 firms that submitted their qualifications to the system.
POTENTIAL SYSTEM OFFICE SITES
Trustee Daryl Bassett, chairman of the board of trustees’ investment finance subcommittee, said the subcommittee decided “we still need more information” after going over three properties in Little Rock for a potential purchase of an office building with commercial real estate broker Ted Dickey on Feb. 12.
The subcommittee recommended asking Fecher to explore the possibility of extending the current lease of its space in the Union Plaza Building without renewing the lease and to meet with the owners of the three properties to determine their price for the properties and report to the board on the final numbers, Bassett said before the board approved the subcommittee’s recommendation.
A map presented to the board’s investment finance subcommittee lists three addresses of properties: 1200 West 3rd Street, 2800 Cantrell Road and 1500 Riverfront Drive.
The Arkansas Teacher Retirement System owns property at 1200 W. 3rd Street that formerly housed the Arkansas Department of Insurance. At the end of 2019, the Arkansas Insurance Department terminated its lease of the system-owned property at 1200 W. 3rd St. and relocated its office to the former Verizon headquarters in Riverdale as part of then-Gov. Asa Hutchinson’s executive branch reorganization.
The McGriff Building is located at 1500 Riverfront and is vacant, Fecher said. She said the Cadence Bank Building is at 2800 Cantrell Road and is occupied by Cadence Bank and other tenants.
In November, the Arkansas Teacher Retirement System’s board of trustees approved a resolution authorizing the sale of the 1200 W 3rd St. property for no less than $2 million.
After the public employee retirement system’s board of trustees meeting Wednesday, Mark White, executive director of the Arkansas Teacher Retirement System, said “We did agree to an option to purchase agreement last November for a potential sale price of $2 million, but the other party elected not to exercise the option” during the first week of January.
“At this point, the building is still on the market and available for purchase,” he said.