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Wednesday, November 25, 2015

PSPRS investment returns through September 2015

The following table shows PSPRS' investment returns, gross of fees*, versus the Russell 3000 for September 2015, the third month of the current fiscal year (FY), with the fiscal year end 2014 and 2015 returns included for comparison:

Report PSPRS PSPRS Russell 3000 Russell 3000
Date Month End Fiscal YTD Month End Fiscal YTD
6/30/2014 0.78% 13.82% 2.51% 25.22%
6/30/2015 -0.73% 4.21% -1.67% 7.29%

7/31/2015 0.13% 0.13% 1.67% 1.67%
8/30/2015 -1.43% -1.31% -6.04% -4.47%
9/30/2015 -1.02% -2.31% -2.91% -7.25%

There is usually about a two-month lag in PSPRS reporting its investment returns.  PSPRS again outperformed the Russell 3000 in a negative month, suffering about 35% of the loss of the Russell 3000.  As in August, both US and non-US equity were the big September losers with US equity down 3.04% and non-US equity down 4.63%.  The Russell 3000 returned an incredible 7.90% in October 2015, and through November 24, 2015, the Russell 3000 has a more modest 0.80% return.  It will be interesting to see what PSPRS' returns are in October 2015 and how much it recoups of the current year's losses, particularly in comparison to the Russell 3000.

Looking at PSPRS' annualized 5-year rate of return, we can see that during the first quarter of the current fiscal year it has dropped from the 9.2%, gross of fees, that it had as of June 30, 2015 to a current rate, gross of fees, of only 7.04%, well below PSPRS' expected rate of return (ERR) of 7.50%.  Since November 2014, this is the first time the annualized 5-year rate has dropped below the ERR.  It does not bode well for the future if PSPRS cannot achieve its ERR during a 6 1/2 year long bull market in which the Russell 3000 earned 13.28% over the same annualized 5-year period.

* Returns, gross of fees, are used because PSPRS usually does not report returns, net of fees paid to outside agencies, except on the final report of the fiscal year.  Returns, gross of fees, are used in the table for consistency.  The past two years fees have reduced the final annual reported return by about a half percent.  Returns, net of fees, were 13.28% and 3.68% for fiscal years 2014 and 2015, respectively.

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