South Carolina Retirement System returned 1.6% net of fees in the fiscal year ended June 30, topping its policy benchmark by 39 basis points, but significantly trailing the 15.3% net return for the prior fiscal year.
The plan’s assets declined 2% during the one-year period, to $29.2 billion from $29.8 billion, as $454 million of investment returns were not enough to counterbalance the $1.1 billion of net benefit payments made during the period, Michael Hitchcock, executive director of the South Carolina Retirement System Investment Commission, Columbia, told a meeting of a state Senate subcommittee on Thursday.
The investment commission invests the assets of the state retirement fund on behalf of the administrative agency South Carolina Public Employee Benefit Authority, Columbia.
The plan’s best-performing asset classes for the year were real estate, 19.3%; private equity, 9.7%; low-beta hedge funds, 8.6%; and private debt, 4.9%. The worst asset class performance in the fiscal year was in commodities, -24%, followed by emerging markets debt, -7.9%; global fixed income, -3.4%; and global tactical asset allocation, -2.5%, Mr. Hitchcock’s presentation showed.
Annualized net returns over longer time periods ended June 30 were more strongly positive and topped internal benchmarks by larger margins: three years, 8.8% (benchmark, 7.7%), and five years, 8.9% (benchmark, 8.1%).
Mr. Hitchcock also showed state senators the positive impact the plan’s extensive alternative investments are predicted to have on future net annualized returns.
For example, a 60% equity/40% fixed income portfolio without any alternative investments is projected to return 5.4% over 10 years and 5.6% over 30 years, Mr. Hitchcock’s report showed.
The retirement system’s current asset allocation, which includes private equity, hedge funds, risk parity, GTAA, high-yield bonds, bank loans, emerging market debt, private debt/opportunistic credit, real estate and commodities, as well as traditional global equity and fixed income, on the other hand, is expected to produce net annualized returns of 6.3% over 10 years and 6.6% over the 30-year period.
The plan’s assumed net rate of return is 7.5% over 30 years (annualized) and is set by the state General Assembly.
