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Friday, May 27, 2016

PSPRS investment returns through March 2016

The following table shows PSPRS' investment returns, gross of fees, versus the Russell 3000 for March 2016, the ninth 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%
10/31/2015 1.95% -0.36% 7.33% 0.08%
11/30/2015 0.37% 0.09% 0.55% 0.63%
12/31/2015 -0.95% -0.86% -2.05% -1.43%
1/31/2016 -1.41% -2.26% -5.42% -7.00%
2/29/2016 -0.35% -2.61% -0.52% -7.52%
3/31/2016 3.45% 0.84% 7.04% -0.48%

PSPRS did not provide monthly investment returns for October 2015 or February 2016, and returns for those months are estimates based on the prior and following months' returns. There is usually about a two-month lag in PSPRS reporting its investment returns.  PSPRS finally crossed into positive territory in 2016.  PSPRS is also showing a positive return for the fiscal YTD while the Russell 3000 is still showing a loss for the fiscal YTD.

Looking at the breakdown of PSPRS' returns YTD, PSPRS has shown positive returns in only four of its ten major investment classes with the bulk of its gains coming in two asset classes, private equity and real estate, earning fiscal YTD 12.65% and 7.71%, respectively.  Private equity has the second highest concentration of assets at 15.73%, behind only domestic equity at 16.31%.  Real estate makes up just over 11% of PSPRS’ total assets, making it the fourth highest concentration of assets.

I was interested to see the specific breakdown of PSPRS' individual investments in the private equity and real estate classes.  However, PSPRS did not give such a breakdown in the private equity, absolute return, real assets, and real estate classes, though it does give such breakdowns of the other six major categories.  Valuations of private equity and real estate investments are less straightforward than classes like equities and fixed income investments, and with private equity and real estate making up over a quarter of PSPRS' total investments, full disclosure of these portfolios would show whether PSPRS' returns are too reliant on one particular investment or too concentrated with one particular firm.

You would think with PSPRS' sketchy past history with its real estate investments the powers that be would be more open about all their investments.  Past Boards of Trustees (and the Fund Managers that preceded the institution of the Board) were abysmal in their oversight of PSPRS' investments, and the current Board inspires no confidence in their oversight abilities.  This makes it all the more crucial that all information about PSPRS' investments be made public so that there are no repeats of the investment disasters of the past.

 * 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.