PENSION FUNDS

South Dakota shows consistently strong returns

Among the largest 100 U.S. public retirement systems, the South Dakota Investment Council has delivered relatively consistent absolute and relative investment returns compared to its peers and its policy benchmarks over the 10-, five-, three- and one-year time frames ended in 2017.

The South Dakota Investment Council has returned an annualized 6.5% over 10 years, higher than the top 10th percentile 6.26% absolute return as well as the 5.6% median absolute return across all 100 systems. Because different pension plans have very different investment strategies and structures, excess return over benchmark could be an effective way to conduct peer comparisons. In fact, the South Dakota Investment Council has outperformed its benchmark 91% of the time in past 10 years. It achieved the second highest 10-year excess return, clocking in at 1.2%, slightly less than the 1.7% of the Missouri Local Government Employees Retirement System, but much higher than the average 80 basis points of excess return across all 100 plans.

The South Dakota Investment Council maintained an average allocation of 45% equity, 22% fixed income; 23% alternatives and 10% cash over the 10 years. Equity investment was reduced significantly, to 34.2% in 2017 from 52.9% in 2009, and cash was raised to 24.5% in 2017 from 3.7% in 2013. The fixed-income allocation fluctuated between 19.3% and 27%, and alternatives exposure dropped to 17% in 2017 from 22.7% in 2009.

Internally managed assets account for 74.9% of the South Dakota Investment Council's total assets: 32.7% in global equity, 12.4% investment-grade bonds, 5.3% high-yield debt and 24.5% cash. The Internal bond and equity portfolios returned an annualized 5.1% and 6%, respectively, over the 10 years, exceeding each benchmark by 50 basis points. Real estate posted a 20.95% return since inception in 1994 and has outperformed its benchmark by 11.1 percentage points. Private equity returned 9.3% since fiscal year 1999, 80 basis points higher than its benchmark.

The South Dakota Investment Council posted an outstanding 11.07% five-year return, compared to the 9.1% median return and a top fifth percentile return at 10.3% across all 100 plans. More importantly, the South Dakota Investment Council beat its benchmark by 1.97 percentage points, higher than top fifth percentile 1.6% excess return and average excess return of 27 basis points.

The South Dakota Investment Council achieved an annualized 5.95% three-year return and a 13.8% one-year return, both slightly higher than the respective medians of 5.83% and 13.22%. The South Dakota Investment Council's three-year excess return was 71 basis points, higher than the average excess return of negative 55 basis points compared to its peers. The South Dakota Investment Council also has outperformed its benchmark by 2.84 percentage points in 2017, significantly higher than the average excess return of 76 basis points across all plans.