David G. Bronner, chief executive officer at the Retirement Systems of Alabama, has had golf on the brain. But he needs to get his mind focused on the investment performance of the $23.3 billion RSA, which performed poorly in its last fiscal year.
Mr. Bronner loves promoting the Robert Trent Jones Golf Trail, the eight golf-course complexes, the system owns. It is pictured throughout the RSA's 1998 annual report and takes prominent space in his introduction.
He pitches the trail ad nauseam, even having someone search for stories about it in publications around the world. One RSA publication brags that 4,750 "positive articles" about it have appeared, including one calling the trail "one of the top 10 trips in the world"!
Investment performance, however, doesn't get similar fanfare. Its latest annual report notes the RSA annualized return for the fiscal year ended Sept. 30, 1998, was 4.8% or 5.3%, depending on the particular pension fund the system manages. For equities, the RSA total return was -2.6% or -2.5%. For fixed income, it returned 9.2% or 9.6%. By contrast, in the same period, the total return for the Standard & Poor's 500 Stock index was 9% and for the Salomon Broad Bond index, 11.5%.
Mr. Bronner, who couldn't be reached for comment, is called an unabashed proponent of targeted investments for bringing jobs and economic development to Alabama. The RSA's $101 million investment in the trail represents a tiny fraction of the system's total assets. But Mr. Bronner trumpets the abundance of economic benefits to the state in tourism growth created by the golf trail. He provides, however, no supporting analysis of the value of this state-financed boosterism.
Darren Schulz, RSA acting chief investment officer, said 1998 was the first year the fund tried to place a rate of return on the golf trail, calculating it at 8%.
Mr. Schulz denies, however, the trail is a social investment. "If it wasn't working, regardless of whether it's in Alabama or Alaska," he said, "we would have abandoned it."
But the 8% doesn't represent the true return, because of the unaccounted subsidies the RSA received in developing the trail. The land was donated by or leased from the federal or state government at a nominal fee, while the infrastructure costs were absorbed by other parties.
So even as a social investment, Mr. Bronner gives no true total cost the people of Alabama bear for the entire trail. As for a benchmark comparison, Mr. Schulz said there really isn't one. He said the golf investment doesn't take an inordinate amount of staff time or detract the staff from the rest of the RSA's investments.
Mr. Schulz said the RSA, in reaction to its poor performance, has made a number of major changes in investment strategy that appear to have improved results.
In equities, he said, "We had some missteps on how we run the portfolio."
"We wanted to get rid of strategies that intermittently earn large returns but then underperform," Mr. Schulz said. "We have gotten away from style bets."
Now the fund is pursuing more of a bottom-up approach for capturing alpha to make moderate but more consistent returns.
In preliminary equity returns for its 1999 fiscal year, ended Sept. 30, Mr. Schultz said equities have returned 28.5%, compared with the S&P 500's 27.9%. The final numbers won't be available until the system's report is released, due early in 2000. Even if the Robert Trent Jones Golf Trail is one of the top destinations in the world, Mr. Bronner's goal ought to be making the RSA among the top pension funds worldwide.