The Florida Retirement System Pension Plan lost 4.4% for the year ended June 30, significantly below the 10.3% of its absolute-return benchmark of actual inflation plus five percentage points, according to a report.
Consultant Ennis Knupp + Associates presented the report on Tuesday at a trustee meeting of the $154 billion State Board of Administration of Florida, Tallahassee, which includes the $126.9 billion Florida Retirement System.
State CFO Alex Sink, also a board trustee, requested the report to assess the impact the market turndown has had on the Florida Pension Plan, wrote Robert Milligan, FSBA interim executive director, in a memorandum to the board.
This below-target return occurred during a period of negative returns in global equity markets combined with rising inflation, the Ennis Knupp report said.
The investment return generated a slight headwind for the plan, but the expectation over the planning period (of 15 years) is that full funding will be preserved, the report said. The plan was 105% funded as of June 30, according to FSBA data.
A year in which performance falls well below the target is not an unexpected occurrence, the report said. In fact, the modeling process used to help set asset allocation policy anticipates multiple below-target years (including a return of -4.4% or below in about one out of every 10 years) an unavoidable feature of uncertain capital markets and inflation while achieving the investment objective over the full planning horizon.
The plans investment return topped the -4.5% median return for the same period of a peer group of 16 funds with an average $27 billion in assets, the report said.
Asset allocation policy for the (Florida) Pension Plan is set with a long-term (15-year) planning horizon in mind, the report said. Ennis Knupp does not view recent investment results or market events and conditions as a reason to modify the plans asset allocation or other policies.
As has been the case following other significant market events (positive and negative), Ennis Knupp clients are generally not pursuing or considering changes to their asset allocation policies, but rather maintaining their long-term investment strategies, the report said. Some Ennis Knupp clients are considering specific investments, such as opportunistic fixed-income investments focusing on market segments heavily affected by recent events.
Contact Barry B. Burr at [email protected]