Minnesota State Board of Investment, St. Paul, returned 2.5% on its combined fund investments in the fourth quarter and 8.6% for the year ended Dec. 31, vs. its respective 2.3% and 8.8% custom benchmark returns.
The returns helped raise assets in the combined fund, comprising assets from the state's defined benefit plans, to $60 billion as of Dec. 31, up 0.5% from 12 months earlier. The board oversaw $80.3 billion in pension and other assets as of Dec. 31.
The combined fund's annualized returns as of Dec. 31 were 11.5% for five years vs. the benchmark's 11%; 7.8% for 10 years vs. 7.5% for the benchmark; and 9% for 20 years compared to the benchmark's 8.7%.
Mansco Perry III, executive director, said the slight underperformance vs. the benchmark for the year, “despite very good returns in alternatives,” was because of its U.S. and international equity returns, which each were just below their benchmarks. Combined, U.S. and international equity make up 60% of the combined fund's asset allocation.
For the year, U.S. equities returned 12.3% vs. its benchmark's 12.6%; international equities, -4% vs. -3.9%; and fixed income, 6.1% vs. 6%.
In the fourth quarter, U.S. equities had the highest performance, at 5.2%, the same as its custom benchmark. Fixed income returned 1.7% vs. 1.8% for the benchmark; and international equities lost 3.3% compared to a -3.9% return for the benchmark.
Alternatives returned 1.1% for the quarter and 18% for 2014; the board does not supply benchmark numbers for alternative investments.
The board's target asset allocation for its combined funds as of Dec. 31 was 45% U.S. equities, 20% alternatives, 18% fixed income, 15% international equities and 2% cash. Its actual allocation as of that date was 47.8% U.S. equities, 23.6% fixed income, 14.2% international equities, 12.7% alternatives and 1.7% cash.
The combined fund's portfolio is overweight fixed income because assets held for future alternatives commitments are held in bonds, Mr. Perry said.