BOSTON - It was a good end to a rocky year for the Massachusetts Pension Reserves Investment Management Board.
A strong fourth quarter return of 7.1% helped boost the year-end 2001 return to -5.3%. That puts the fund in the middle of the pack in the Trust Universe Comparison Service of Wilshire Associates Inc., which tracks the returns of public pension funds. The $28.8 billion fund placed in the 53rd percentile in the TUCS rankings, slightly less than the median public fund return of -5.2%.
While the negative return is hard to swallow, PRIM board members found some solace in the fact that the fund beat its benchmark by 175 basis points. A second straight negative year for the pension fund in 2001 brings the annualized three-year return to 4.8%. The five- and 10-year annualized returns of 9.4% and 10.7%, respectively, remain above the fund's 8.25% assumed actuarial rate of return.
Dennis Sugino, consultant with Wilshire, Santa Monica, Calif., said the return reflects the more aggressive nature of the PRIM board fund relative to other public funds, which has helped the fund outperform over the long term. PRIM's annualized three-year return of 4.8% places it in the 19th percentile of the TUCS rankings. The five- and 10-year returns for the period ended Dec. 31 place the fund in the 15th and 14th percentiles, respectively. The median public fund return for the three years was 3.1%; the median public fund return for the five- and 10-year periods was 8.3% and 9.9%, respectively.
Top returns in the TUCS rankings are in the black, but just barely. Pension funds in the top quintile managed returns of 0.5% for the one year.
Shannon O'Brien, PRIM board chairwoman and Massachusetts state treasurer, said the fund's performance needs to be viewed in the broader scope. In the past, she said the pension fund needed to be more aggressive because its funded status was so low: "We were compelled to have higher equity exposure to meet the challenges of being underfunded."
The funded ratio reached a low of 39.8% in 1990. During the past 10 years the funded status gradually has climbed, reaching 85.2% at year-end 1999. Last year, the funded status dropped three percentage points to 82.1% because of market conditions. State legislation now has the pension fund on a schedule to be fully funded by 2018.
Top-performing assets in the PRIM portfolio in 2001 were real estate, which returned 10.9%, and domestic fixed income, which returned 7.9%. All other asset classes posted negative returns. Alternative investments and international equities were the worst performing asset classes, returning -17.8% and -17.6% respectively.