Summer 2013 – St. Paul Teachers’ Retirement Fund Association
SPTRFA’s investment portfolio, preliminary, has recorded approximately 13.5% return for the latest fiscal year, well above the target return which was legislatively set at 8% within the past year. Asset totals have climbed back into the $940 million range following a disappointing flat return in the prior fiscal year. In the past three year stretch, the portfolio has generated 12.5% annually with its long term holding at the 9% level.
The Board has been gradually evolving the Fund into a more global focus among both equities and fixed income with the idea of dampening volatility through the use of lower correlated assets. Additionally, it has, over the past year, broadened its exposure among more inflation sensitive holdings. At present, inflation remains muted and as a result these assets, such as Treasury Inflation Protected Securities (TIPS), real estate, energy infrastructure, etc. have lagged equities, especially domestic equities.
Domestic equities, especially smaller and mid capitalized companies, did extremely well, climbing 30% for the past twelve months. Dimensional Fund Advisers, a small cap value style manager based in Austin, TX, remained one of the Plan’s to performing managers with a 32% return. Small/mid cap manager, Boston Company, rebounded after a disappointing 2012, to add nearly 35% in the past twelve months. Boston Company, along with mid cap focused Wellington Management (up 25%) were both given additional assets a year ago by the Board successfully taking advantage of a past dip in performance.
In non-US markets, returns were solid but less than domestic stock returns. Capital Group, based in Los Angeles, oversees an emerging market equity portfolio, searching for opportunities in companies based in “developing countries” such as Singapore, South Korea, Brazil, etc. This has been a difficult investment area of late. This past year gave signs that it may be on the rebound, but modestly with Capital Group adding approximately 1% over the benchmark at 4%. Among developed non-US markets, equity returns were in the “mid-teens”.
The most challenged asset area was the interest sensitive, bond portfolio. With indications that the near 30 year “bull market” period for bonds may be ending, with longer term rates headed higher, returns were mildly negative for the twelve month period. This applied across the Board to both active and passive strategies as well as high yield and investment grade securities.
Overall, the portfolio outperformed its policy benchmark for the twelve months by over 100 basis points while continuing to seek to reduce overall risk. The Board relies on Fund assets to meet its benefit payments and other obligations as annual contributions from active members, the employer school district and State aid combine to cover only about 40% of costs. That shortfall results in the need to apply about $65 million from the Fund’s assets to pay annual retirement benefits. This past year, even with that annual draw-down, the total growth of assets reached approximately $60 million.