Minnesota State Board of Investment, St. Paul, returned a net 7.6% on its pension investments in 2016 vs. the board's custom benchmark return of 8.3%.
Returns for the fourth quarter were 1.5%, matching the benchmark.
The board returned zero in 2015 and 2.9% in the fourth quarter of that year, compared to its custom benchmark returns of 2.9% and -0.1%, respectively.
For periods ended Dec. 31, the board returned 5.3% for three years, 9.8% for five years, 6.1% for 10 years, 7.4% for 20 years and 8.9% for 30 years. Benchmark returns for the same periods were 5.6% for three years, 9.5% for five years, 5.9% for 10 years, 7.2% for 20 years and 8.7% for 30 years. All multiyear returns are annualized.
Mansco Perry III, the board's executive director and chief investment officer, attributed the 2016 returns to underperformance of domestic and international equities vs. their benchmarks. Mr. Perry said the board is in the process of increasing its allocation to passive large-cap equity, and “I would anticipate that the active and semi-passive portion of that segment will diminish significantly as we transition to our next asset allocation targets.”
For 2016, public equity returned 9.2%, with its U.S. equity suballocation returning 11.5% while international equity returned 2.6%; fixed income, 3.6%; and private markets, 7.6%.
The board's allocation as of Dec. 31 was 63.8% public equity (58% target), 20.2% fixed income (20% target), 13.2% private markets (20% target) and 2.8% cash (2% target).
Separately, the board on Thursday approved the termination of State Street Global Advisors, which managed $65 million in large-cap equities for the state's $300 million worker's compensation assigned risk plan. The mandate had been managed by GE Asset Management, which was acquired by SSGA last year. Mr. Perry said SSGA was planning to change the portfolio's strategy.
Assets were moved to the board's internally managed Non-Retirement S&P 500 Equity Index Pool, Mr. Perry said.
The board oversaw a total of $82.7 billion in assets, including $59.9 billion in state pension assets, as of Dec. 31.