Investment Market Review: Meeting Ongoing Challenges
With the ongoing debt crisis in Europe, record-low interest rates and concerns about global growth, institutional investors like PSRS and PEERS continue to search for investment opportunities in an ever-changing economic landscape.
There's No Crystal Ball
When evaluating investments today, the PSRS/PEERS staff considers both "known knowns" - data and market information that is definable - and "known unknowns" - major global events that we know are on the horizon, but with an uncertain outcome. The "known knowns" involve many of the economic issues you experience personally and hear about on the news: rising food and energy costs, lower growth prospects for the economy, an unsustainable debt burden for many developed countries (including the United States) and high unemployment.
The "known unknowns" are less certain: the outcome of the U.S. presidential election; the result of the European sovereign debt issue, which could result in potential default on European government bonds issued in foreign currencies; and a potential slowdown in the Chinese economy.
A Strategy for Successful, Long-Term Results
The challenge for PSRS/PEERS is to manage the investment portfolio through what we "know" and by recognizing the potential impacts of those issues and future events that we realize are "unknowns." This is addressed by the Systems' long-term investment strategy. We maintain a diversified portfolio structured to withstand short-term shocks to the markets, yet positioned to provide consistent asset growth over time. Our long-term strategy is designed to help deliver more stable returns while navigating difficult market conditions, and continue to provide our members with the retirement security they have earned.
Signs of Improvement
While the fiscal year investment returns (June 30, 2012) for PSRS/PEERS were slightly below 2%, financial markets have strengthened over the summer. This is partly in response to the anticipated continued injection of additional money into both European and the United States economies by their governments. The result has been strong returns in both U.S. and non-U.S. stock markets for calendar year 2012 (through August 31). The U.S. stock market is up over 13% for the year, with non-U.S. markets up almost 7%. The estimated PSRS/PEERS return for the calendar year is in excess of our assumed return rate of 8%.
The total assets of PSRS and PEERS were approximately $31.1 billion on August 31, 2012, making the combined entity larger than all other public pension plans in the state combined and the 44th largest defined benefit pension plan in the United States.