Amid volatile U.S. stock markets, the value of the Arkansas Teacher Retirement System's stock and bond investments likely remained "about even" during the quarter that ended last week, an investment consultant told the system's board of trustees Monday.
Afterward, System Executive Director George Hopkins said in an interview that the system's total investments are likely now valued at $17.1 billion to $17.2 billion. Official figures were unavailable Monday.
During the first six months of the fiscal year that started July 1, the investments of state government's largest retirement system increased in value from $16.12 billion to $16.99 billion, Rod Graves, associate director of operations, said after the trustees' meeting. As of Dec. 31, the investment portfolio included, among other things, stock investments totaling $9.78 billion and bond investments totaling $2.59 billion, he said.
P.J. Kelly of Chicago-based Aon Hewitt Investment Consulting told the trustees that the system's return on stock and bond investments in the first nine months of the fiscal year -- including the quarter that ended Saturday -- is likely about 8 percent.
Kelly said he doesn't have final figures for the overall return so far in the fiscal year.
The changes in the value of about a third of the system's portfolio -- for other assets such as private equity and real estate and agriculture investments -- won't be available until later for the last quarter, "so you could still potentially improve" the overall investment return, Kelly said.
While the system's stock and bond investments posted a flat return last quarter, Hopkins said U.S. investment markets "were down about 2 percent" and "we have gone global [in investments] and there are times where European and Asian markets and other indices are doing better than the United States and this is just one of the reasons why if we were in U.S. only we probably would be talking about a decline versus flat."
During the meeting, trustees authorized up to $410 million in new investments, beyond stocks and bonds, that are aimed at further diversifying the portfolio.
These included alternative investments of up to $100 million apiece in Capital Fund Management Institutional Systematic Diversified Fund LP Series 1.5, managed by Capital Fund Management based primarily in Paris, and Man Alternative Risk Premia SP-Class A, managed by the Man Group PLC based in London.
Kelly told the trustees these alternative investments will use a range of strategies designed to capture the benefit of traditional hedge funds with lower fees from the funds being more like index funds.
"We already have a hedge fund exposure, and perhaps what will happen is some of our weaker performing hedge funds will actually end up funding this," Hopkins said.
The other investments authorized by the trustees include up to $25 million apiece in the Washington, D.C.-based Carlyle Realty Partners VIII LP real estate fund and the Los Angeles-based Kaye Anderson Real Estate Partners V LP real estate fund; up to $30 million in the New York-based Almanac Realty Securities VIII LP real estate fund; up to $50 million apiece in the New Jersey-based MetLife Commercial Mortgage Income Fund LP real estate debt fund, and the Netherlands-based DIF Infrastructure V funds that invests in public-private partnership projects such as toll roads and regulated utilities.
The trustees also approved spending up to $30 million in a private equity investment in Boston-based Riverside Partners IV, a buyout fund specializing in small health care and technology companies in the United States.
At Hopkins' request, the trustees voted Monday to deny him any pay raise in the next* fiscal year tied to his performance evaluation. Trustees graded him at the highest level in various components. Hopkins' salary is $180,108 a year, according to the Arkansas Transparency website.
"To the extent that [the state Department of Finance and Administration] will accept that, I will not get a raise," Hopkins said after the meeting.
He said he made the request not to get a raise because "we made several changes to our benefits and I want be in solidarity with our members.
"Everybody is giving something. I wanted to give something back too," he said.
Officials for actuary Gabriel, Roeder, Smith & Co. of Southfield, Mich., told the trustees last December that the system's projected payoff period for its unfunded liabilities remained largely the same as of June 30 compared with the previous year because the trustees last fall 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 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.
Unfunded liabilities total $4.1 billion and the projected payoff period 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.
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, and average benefits of about $23,174 a year as of June 30, Gabriel said.
Metro on 04/03/2018
*CORRECTION: The board of trustees of the Arkansas Teacher Retirement System voted Monday to deny, at the request of system Director George Hopkins, a performance-based pay raise to Hopkins in the next fiscal year. A previous version of this story misstated which fiscal year was involved.