Strong Investment Performance for Calendar Year 2012March 15, 2013
The Public School and Education Employee Retirement Systems of Missouri (PSRS and PEERS) earned investment returns of 12.1% and 11.7%, respectively, for the calendar year ended December 31, 2012. Combined assets increased through investment earnings by over $3.3 billion over the previous year as each major risk asset category within the Systems’ investment portfolio generated strong returns. For example, the PSRS and PEERS U.S. stock portfolios increased over 16% for the year, the credit bond portfolios moved almost 9% higher and private real estate produced returns in excess of 10%.
Markets moved higher in 2012 due to quantitative easing from the Federal Reserve and better than anticipated macro-economic news, suggesting that the U.S. economy and the global economy picked up some momentum. For example, U.S. growth was stronger than expected in 2012 and appeared to stabilize toward year-end, unemployment continued to decline modestly and there has been a partial recovery in housing.
As we move into 2013, the investment landscape is more uncertain throughout the world. In the near term, the Eurozone debt crisis remains a headwind to international growth. Closer to home, the U.S. also has pressing financial problems. Specifically, issues related to the 'fiscal cliff' could reduce U.S. growth over the course of the year due to tax increases and potential spending cuts. Additionally, the U.S. will be dealing with a trillion-dollar deficit, declining savings rates and continued high unemployment levels for the foreseeable future.
These uncertainties reinforce the System's application of the fundamental principles in the management of the investment portfolio:
- Focus on the long-term investment horizon which requires discipline and patience,
- Balance the long-term investment strategy of PSRS and PEERS with shorter term views as market dynamics change,
- Manage risk by maintaining adequate liquidity and balancing the portfolio for the heightened possibility of market inflection points, and
- Continue to build a disciplined and diversified portfolio, the benefits of which are even stronger in uncertain and highly volatile markets.
The diversified asset allocation has provided long-term results that have exceeded the 8% return objective while also providing the safety and liquidity to withstand significant short-term events in the investment markets. We believe that through adherence to a disciplined and prudent asset allocation, PSRS and PEERS can continue to maximize risk-adjusted returns for current and future members.
The total assets of PSRS and PEERS were approximately $31.8 billion on December 31, 2012, making the combined entity larger than all other public retirement plans in the state combined, and the 45th largest defined benefit plan in the United States.