State of Alaska Department of Revenue. Alaska Retirement Management Board

Transcription

1 State of Alaska Department of Revenue Alaska Retirement Management Board March 2016 Department of Revenue

2 Alaska Retirement Management Board Fiduciary of the Fund AS Consider status of the fund s investments and liabilities Determine the appropriate investment objectives Establish investment policies to achieve objective Act only in regard to the best interest of the system s plan and beneficiaries Department of Revenue 2

3 Alaska Retirement Management Board Composition and Duties Nine Members Establish Investment Policies Review Actuarial Earnings Assumption Establish Asset Allocation Provide Investment Options Department of Revenue 3

4 IAC ARMB Retirement & Benefits Liabilities General Consultant CIO Actuary Third Party Administrators Staff Internal Asset Mgmt Organizational Structure Other Staff Acct & Liaison Department of Revenue 4

5 Alaska Retirement Management Board Consultant Asset Allocation/Strategy Performance Measurement Consulting: General Specific Assist in Asset Manager Searches Department of Revenue 5

6 Alaska Retirement Management Board Investment Advisory Council Permitted by Statute Three to Five Members Review and Advise on Investment Policy, Strategy & Procedures Dr. Jerrold Mitchell Dr. William W. Jennings Robert Shaw Department of Revenue 6

7 Standard Deviation Period Return Return Squared Return Deviation Deviation SUM Mean N - 1 = Variance= Standard Deviation=SQRT of Variance Excel formula Department of Revenue 7

8 Alaska Retirement Management Board Normal Curve and Standard Deviation Department of Revenue 8

9 Alaska Retirement Management Board Compound Annual Return Historical Risk/Return Tradeoff 20% 15% 10% 5% Ibbotson Associates, 2005 Yearbook Cash Equivalents Corporate Bonds Long-Term Govt Bonds Intermediate Govt Bonds Common Stocks Small Stocks 0% 5% 10% 15% 20% 25% 30% 35% 40% Risk (Standard Deviation) Department of Revenue 9

10 Alaska Retirement Management Board Correlation of Asset Class Returns Ibbotson Associates, 2005 Yearbook 1926 to 2004 Large Small LT Corp LT Govt Int Govt US Stocks Stocks Bonds Bonds Bonds T-Bills Large Stocks 1.00 Small Stocks LT Corp Bonds LT Govt Bonds Int Govt Bonds US T-Bills Department of Revenue 10

11 Alaska Retirement Management Board 15% Efficient Frontier Compound Annual Return 10% 5% 0% A C B 4% 7% 10% 13% 16% 19% 22% 25% Risk (Standard Deviation) E D Portfolios A = 100% Cash B = 100% Bonds C = 60%/40% Bonds/Equity D = 60%/40% Equity/Bonds E = 100% Stocks Department of Revenue 11

12 Impact of Volatility Year Percent Gain or (Loss) Balance Percent Gain or (Loss) Balance $ $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $95.10 Average Gain = 0% Average Gain = 0% Department of Revenue 12

13 International Equity Gain = 9% +/ % Year Percent Gain or (Loss) Balance Percent Gain or (Loss) Balance $ $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ Average Gain = 9% Average Gain = 9% Department of Revenue 13

14 Capital Market Projections: Returns and Risks Source: Callan Associates Inc. Projected Arithmetic Return 10 Yr. Geometric Mean Return Projected Standard Deviation AssetClass Broad Domestic Equity 8.85% 7.35% 18.70% Large Cap 8.60% 7.25% 17.95% Buy Write 6.85% 6.10% 13.50% Yield Alternatives 6.10% 5.55% 11.75% Small/Mid Cap 9.85% 7.55% 22.75% Alternative Equities 7.58% 6.75% 14.48% International Equity 9.00% 7.25% 20.05% Emerging Markets Equity 11.15% 7.60% 27.85% Global ex US Equity 9.54% 7.55% 21.32% Intermediate Treasurys 2.85% 2.80% 3.60% Domestic Fixed 3.05% 3.00% 3.75% Non US Fixed 1.80% 1.40% 9.20% TIPS 3.10% 3.00% 5.30% High Yield 5.40% 4.95% 10.50% Fixed Income Composite 3.00% 2.95% 3.60% Real Estate 7.20% 6.00% 16.45% Timberland 7.50% 6.15% 17.50% Farmland 7.50% 6.15% 17.50% Real Assets 6.44% 5.80% 12.73% Hedge Funds 5.55% 5.25% 9.30% Private Equity 13.15% 8.15% 32.80% Cash Equivalents 2.25% 2.25% 0.90% Inflation 2.25% 2.25% 1.50% Department of Revenue 14

15 Target Asset Allocation Fiscal Year 2016 Asset Class Allocation Range Broad Domestic Equity 26% ± 6% Global Equity Ex-US 25% ± 4% Private Equity 9% ± 5% Real Assets 17% ± 8% Absolute Return 5% ± 4% Fixed Composite 12% ± 5% Alternative Equity Strategies 3% ± 2% Cash Equivalents 3% ± 3% Total 100% Department of Revenue 15

16 Long-Term Returns ARMB Long Term Returns - Through 6/30/2015 Annualized Returns PERS TRS Average APFC Difference 31 Year 9.13% 9.49% 9.31% 9.04% 0.26% 30 Year 8.69% 8.69% 8.69% 8.53% 0.16% 25 Year 7.95% 7.99% 7.97% 7.98% -0.01% 20 Year 7.41% 7.47% 7.44% 7.54% -0.10% 15 Year 5.47% 5.49% 5.48% 5.76% -0.29% 10 Year 6.69% 6.73% 6.71% 6.40% 0.31% 5 Year 10.89% 10.96% 10.93% 10.17% 0.76% 3 Year 11.27% 11.30% 11.29% 10.42% 0.87% 1 Year 3.29% 3.30% 3.29% 5.09% -1.80% Department of Revenue 16

17 PERS Funded Ratio History (Based on Valuation Assets) 120% 100% 80% 68% 71% 106%106%106% 106% 102% 101% 101% 100% 94% 93% 97% 98% 97% 95% 95% 92% 91% 88% 85% 82% 79% 75% 73% 70% 66% 63% 68% 70% 62% 62% 63% 61% 61% 70% 78% 60% 40% 20% 0% At June 30 Department of Revenue 17 3

18 Alaska Retirement Management Board Defined Contribution Plans Retirement Plan, Supplemental Benefits System, and Deferred Compensation Department of Revenue 18

19 Program Overview The State offers three defined contribution programs where beneficiaries make investment decisions for their own account based on a menu of options provided by the State. These programs, and their statutory references, are as follows: Assets in Defined Contribution Plans Total Assets: $4.6 billion September 30, 2013 (in millions) Deferred Compensation, $714, 16% Supplemental Benefits System (PERS only): AS Deferred Compensation (PERS only): AS Defined Contribution Retirement Program: AS , AS ARMB Powers and Duties: AS Supplemental Benefits System, $3,333, 73% PERS Retirement Plan, $376, 8% TRS Retirement Plan, $161, 3% These programs are managed collaboratively by the Department of Administration and the Department of Revenue. Generally speaking, the Department of Revenue oversees the investments and the investment menu structure and the Department of Administration oversees the record keeping and administration of the participant accounts. ARMB s responsibility is to provide a range of investment options and establish the rules by which participants can direct their investments among those options with respect to accounts established under the defined contribution programs (AS (a)(5)). For SBS and the Deferred Compensation program, statute requires ARMB to consult with the Commissioner of Administration before making a decision if ARMB is entering or modifying a management or investment contract. ARMB has established a Defined Contribution Committee which includes at least three Trustees. The Committee has the authority to research, review and recommend policies and procedures that it believes may be beneficial to the members of the retirement systems, or that represent best practices, or that result in efficient administration of the defined contribution plan for public employee members and teachers. The Committee makes recommendations to ARMB for final approval and adoption of any proposed changes. Department of Revenue 19

20 Investment Option Menu DC Deferred Comp SBS Active/Passive Manager Cash Alaska Money Market Master Trust X Active T. Rowe Interest Income Fund X Active T. Rowe Stable Value Fund X Active T. Rowe State Street Institutional Treasury Money Market Fund X X X Active SSgA Domestic Equity T. Rowe Price Small-Cap Stock Trust X X X Active T. Rowe S&P 500 Stock Index Fund X X X Passive SSgA/BlackRock Russell 3000 Index X X X Passive SSgA Allianz Socially Responsible Investment Fund X X X Active Allianz U.S. Real Estate Investment Trust Index X X X Passive SSgA International Equity Brandes International Equity Fund Fee CL-1 X X X Active Brandes World Equity Ex-U.S. Index X X X Passive SSgA Domestic Bonds Government/Credit Bond Index Fund X X X Passive BlackRock Intermediate Bond Fund X X X Passive BlackRock Long U.S. Treasury Bond Index X X X Passive SSgA U.S. Treasury Inflation Protected Securities Index X X X Passive SSgA International Bonds World Government Bond Ex-U.S. Index X X X Passive SSgA Balanced/Target Date SSgA Global Balanced Fund X X X Active SSgA Alaska Long-Term Balanced Trust X X X Active T. Rowe Alaska Balanced Trust X X X Active T. Rowe Alaska Target Date Retirement 2010 Trust X X X Active T. Rowe Alaska Target Date Retirement 2015 Trust X X X Active T. Rowe Alaska Target Date Retirement 2020 Trust X X X Active T. Rowe Alaska Target Date Retirement 2025 Trust X X X Active T. Rowe Alaska Target Date Retirement 2030 Trust X X X Active T. Rowe Alaska Target Date Retirement 2035 Trust X X X Active T. Rowe Alaska Target Date Retirement 2040 Trust X X X Active T. Rowe Alaska Target Date Retirement 2045 Trust X X X Active T. Rowe Alaska Target Date Retirement 2050 Trust X X X Active T. Rowe Alaska Target Date Retirement 2055 Trust X X X Active T. Rowe Department of Revenue 20

21 Investment Option Utilization Options represent over 85% of assets in each plan *Interest Income Fund available in Deferred Compensation Plan only ** Stable Value Fund available in SBS Plan only Source: Great-West Retirement Services Department of Revenue 21