State and local government pension funds started the year with their worst quarterly returns since the start of the pandemic. Things have only gone downhill since then.
Loss on both share and bond market deals a double blow to the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, firefighters and other public service workers. These retirement plans returned an average of minus 4.01% in the first quarter, according to data from the Wilshire Trust Space Comparison Service due to be released on Tuesday. Recent losses continue erode their property.
“It’s been a tough time,” said Jay Bowen, manager of the Tampa Fire and Police Officers Retirement Fund. “No one is immune.”
The at the same time reduce the price of stocks and bonds is causing pain for household and institutional investors alike in 2022. The S&P 500 Index has returned negative 13.5% year-to-date as of Friday, while the U.S. Aggregate bond index of Bloomberg US — mostly U.S. Treasuries, highly rated corporate bonds, and mortgage-backed securities — returns minus 10.5%.
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Retirement funds maintain huge portfolios of stocks, bonds and other assets, wielding considerable power on Wall Street, where their purchases can change prices and investors. Investment managers scrambled their businesses. Their losses could increase costs for governments and workers, squeeze city budgets and raise taxes.
At the Tampa fund, one of the nation’s best-performing funds, Mr. Bowen is sitting tight waiting for long-term opportunities, such as investment-grade bonds with coupons of at least 6% or stocks promises a price drop enough to make them pay off.
“Companies that have been unfairly punished, have strong balance sheets, are free [after-expenses] cash flow, there are dividends,” he said. “Particularly in this environment, we want to look for companies that not only have a strong dividend growth record, but also have a relatively attractive dividend yield.”
Robert J. Waid, chief executive officer at Wilshire, said the pension plan’s lack of performance put the average pension fund return for the nine months ended March 31 at 0.82%. , said Robert J. Waid, managing director at Wilshire. That could mean higher retirement costs for many employers and state and local government employees, who must help make up the difference as these funds, mostly dated. ended the fiscal year June 30, falling short of its profit target of around 7%.
The North Carolina Retirement System, among the nation’s better-funded retirement plans, with a return on investment target of 6.5 percent, has returned an estimated 5.5 percent through the end of the day. May 6 in the fiscal year that runs from July 1 to June 30.
“We have a lot of counties and cities that are struggling with the costs of inflation and every time the plan doesn’t work, they have to put more money in,” said North Carolina Treasurer Dale Folwell. Dale Folwell said. “At the local level, they have nowhere to go other than property taxes.”
Quarterly public pensions were last reduced in early 2020, when they suffered worst quarter on record, returned the average minus 13.2% after the Covid-19 pandemic began to plunge the market into turmoil. But a federal stimulus effort soon helped push the pension fund to seven consecutive quarters of profits, including best quarter on record. Now, some fund managers worry that this downturn could be sustained for much longer.
Central bank efforts curb inflation reduced returns on stocks and bonds in 2022. Many funds scrambled to respond to Russia’s invasion of Ukraine in February, either marking assets down or selling them at a loss in respond to public pressure. Oil and gas stocks, along with commodities, are among the bright spots.
Stocks drive returns at public pension funds. According to Wilshire, they have just over half of their assets in domestic stocks and almost 7% in international stocks. Retirement funds with more than $1 billion in assets have 38% domestic equities and nearly 10% international assets.
The lackluster performance of retirement plans can mean higher retirement costs for many employers and local and state government employees.
Photo:
Jeff Chiu / Associated Press
“You’ve got higher inflation, you’ve got the war in Ukraine, the supply chain,” Mr. Waid said. “The market is really worried about which shoe will drop in price next.”
Retirement plans with assets greater than $1 billion returned an average of minus 3.1% in the first quarter. These plans tend to attract larger staff and more sophisticated investment professionals.
But additional losses can be reserved for those retirement funds. Larger funds that allocate more money to alternative investments, such as private equity, typically report returns after one or more months.
“It is difficult to know whether that is [slightly better median return] Mr. Waid said. “Did they really create alpha?”
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