Smith & Co.

Sep 28, 2023

Aug. 31 value was $10.63B, deputy director tells trusteesby Michael R. Wickline |Today at 4:02 a.m. Arkansas Department of Finance and Administration Secretary Larry Walther is shown in the undated file photo. The Arkansas Public Employees Retirement System's investments gained about $648 million in value, to $10.69 billion, in the fiscal year that ended June 30, an investment consultant told the system's board of trustees on Wednesday. The consultant, Callan, reported that the system's investment return of 8.83% in fiscal 2023 ranked among the top 59% of the nation's public pension systems. Carlos Borromeo, the system's deputy director of investments and finance, told the trustees that "we performed pretty well" in fiscal 2023, given that the system didn't have any private equity investments. The system's target investment return is 7% a year. On Aug. 31, the system's investments were valued at $10.63 billion, he said. Trustee Larry Walther, who is the state treasurer, told his fellow trustees that "we have done a good job of generating returns over the long haul." The system's average investment return over the past 10 years is 7.78% a year, which ranks among the top 39% of the nation's public pension systems, according to Callan. Also on Wednesday, the system's trustees voted to set a minimum rate of 15.32% of employee payroll to charge state and local government employers participating in the system in fiscal 2026. That minimum is what the system currently charges employers. Trustees will formally set the rate for fiscal 2026 at their next scheduled meeting, in November. The system's actuary, Gabriel, Roeder, Smith & Co., said the trustees could slightly reduce the rate charged to state and local governments in the system to 15.26% of employee payroll in what the actuary described as a preliminary employer contribution rate. But Walther said he tends to like keeping the rate charged to state and local governments in the system at 15.32%, adding that the system may have to raise that rate sometime in the future. "Let's not lower it now and raise it later," he said. In fiscal 2023, employers contributed $340.1 million to the system and the system's working members contributed $93 million, according to a system report. In fiscal 2023, the system's working members who contribute to the system paid 5.25% of their pay into the system. In fiscal 2024, they will be paying 5.5%. That rate will increase 0.25 % each fiscal year until it reaches 7% of salary under state law. As of June 30, Callan reported the system's domestic stock market investments reached $4.12 billion after obtaining an investment return of 15.24% in fiscal 2023, and the system's international stock market investments totaled $2.75 billion after posting an investment return of 17.06%. The system's bond investments totaled $1.88 billion after earning an investment return of 0.82%, and the system's real assets, including real estate, farmland and timber, reached $1.48 billion after posting an investment return of minus 7.53%, according to Callan. In other action on Wednesday, the trustees voted to hire Neuberger Berman as a primary private equity manager and HarbourVest Partners as a secondary private equity manager. The system is committed to eventually making private equity investments totaling about $400 million with HarbourVest Partners as the secondary private equity manager and $325 million with Neuberger Berman as the primary private equity manager, Borromeo said. ACTUARY REPORT As of June 30, the system had 43,352 working members with an average salary of $48,724 a year, according to Gabriel, Roeder, Smith & Co. That's up from 42,771 working members with an average annual salary of $45,020 a year earlier. The system had 42,276 retired members, including deferred retirement plan participants, with total annual benefits of $703.5 million, or an average of about $16,640 a year, as of June 30, the actuary reported. That's up from 41,390 retired members with total annual benefits of $671.2 million, or an average of $16,216 a year, as of June 30, 2022. There are 1,473 deferred retirement plan members with a total payroll of $103 million, or an average of $69,925 a year, according to the firm. Gabriel, Roeder, Smith & Co. said the system's unfunded liabilities total $2.43 billion, based on the system's actuarial accrued liabilities totaling $13.07 billion and the funding value of the system's assets totaling $10.64 billion as of June 30. The system's unfunded liabilities are the amount by which the system's liabilities outdistanced its assets. The projected payoff period for most of the system's unfunded liabilities is 17 years, and the projected payoff period for the rest of the unfunded liabilities is 20 years, the actuary reported. Actuaries often compare the projected payoff period for a retirement system's unfunded liabilities to a mortgage on the house. CLASS-ACTION LAWSUIT Laura Gilson, the system's chief legal counsel, told the system's trustees that a federal judge has appointed the system as well as the Public Employees Retirement System of Mississippi as lead plaintiffs in a class-action securities lawsuit against Seagate Technology Holdings and two of its executives. In July, the Bernstein Litowitz Berger & Grossman LLP law firm, representing the Mississippi system, filed a class-action lawsuit against Seagate in federal court in the Northern District of California. Among other claims, the lawsuit states that the U.S. Department of Commerce's Bureau of Industry and Security announced in April that it had imposed a $300 million civil penalty against Seagate for violating a ban on hard drive sales to the Chinese firm Huawei. Gilson said the Mississippi and Arkansas retirement systems collectively claim losses of about $4.5 million, and a German company claims losses of about $4.5 million, so the lead plaintiffs in the case are still getting stronger. Arkansas Public Employees Retirement System Executive Director Amy Fecher said the Arkansas system's claimed losses are about $1.52 million, and the Bernstein Litowitz Berger & Grossman law firm also is representing the Arkansas system in the lawsuit. DEPUTY DIRECTOR HIRED Fecher told the system's trustees that the system has hired Ashley Golleher as the deputy director of operations. "We have divided the agency into three areas: the investments and finance, benefits and operations," Fecher said. "Ashley is overseeing what has been communications and our education units, which we are calling public affairs now, and IT, HR and our digital services," she said. "We are making a huge push to get everything digitalized in the agency." Golleher previously served as a general manager for the developer and implementer of the state's eProcurement system, director of government relations at Arkansas Tech University, and the principal for a consulting and government affairs firm focused on education, business tax and regulatory issues, according to her LinkedIn profile. Afterward, Fecher said Golleher started work for the system on Aug. 14 at a salary of $130,000 a year. The system now has three deputy directors specializing in separate areas to include investments and finance, benefits, and operations, she said. She told the system's trustees that the Arkansas Teacher Retirement System's trustees on Monday changed the teacher retirement system's investment policy to comport with Acts 411 and 498 regarding environmental, social and governance issues, or so-called ESG issues. The public employees retirement system's trustees will be presented with staff recommendations regarding the system's investment policy in November, Fecher said. She said attorneys are looking at whether the system needs to change its investment policy to comport with these two laws "because, of course, we are always going to be complying with all the state laws in our investments." "Do we need to put it in the investment policy or not? That is something for the board to decide," Fecher said. Print Headline: System exceeds its target return ADVERTISEMENT