Arkansas Public Employees’ Retirement System, Little Rock, posted an investment return of 9.9% for the latest calendar year, lifting the value of the pension fund’s investment portfolio to $11.8 billion as of Dec. 31.
APERS’ tilt to U.S. equities — “the place to be” over the past year, Carlos Borromeo, deputy director of investments and finance, told board members at a March 12 meeting — helped power those gains. The pension fund’s domestic equity holdings, on the strength of an 18.6% return for the year, rose to just under $5 billion, or 42% of APERS’ total portfolio.
Still, the S&P 500’s 25% surge for the year, driven by hefty gains for the Magnificent Seven — as Amazon, Alphabet, Apple, Meta Platforms, Microsoft, NVIDIA and Tesla have come to be known — left the pension fund’s active equity managers as a group trailing their benchmarks by more than 5 percentage points for the latest year.
The narrowness of the U.S. equity market, with the Magnificent Seven responsible for almost 60% of the S&P 500’s returns for the year, made for a tough environment for domestic equity managers, Callan senior vice president and consultant Brianne Weymouth told the board, adding “it all comes down to what they held within those seven stocks.”
For the year, the pension fund’s total 9.9% return fell short of its 10.8% policy benchmark. For calendar year 2023, APERS reported a 12.3% gain to just under $11 billion.
Meanwhile, Weymouth noted that APERS, in conjunction with Callan, is poised to begin the first review of the structure for the pension fund’s international equity exposures in five years, touching on “how we can maybe restructure that portfolio” and considering with which current external managers for that segment the pension fund will want to move forward.
APERS ended the year with $2.6 billion in international equities, or 22% of the total portfolio, on the back of a 4.9% return for the year. The pension fund had previously lowered its allocation target for that market segment to 17%.
Borromeo told board members that a China divestment bill under consideration by Arkansas Legislature could have considerable ripple effects for the pension fund's international equity restructuring.
