Massachusetts pension fund returns drop 3%, but outperform market

With market conditions in the gutter, the Massachusetts pension fund has taken an arguably unavoidable hit — but weathered the storm far better than most of the market.

In fiscal 2022, ending on June 30, U.S. stocks were down –10.5%. Developed international stocks dropped by -17.7%. Emerging market stocks -25.2%. Diversified bonds –10%. The popular well-diversified portfolio benchmark of a 60-40 mix of global stocks and bonds –13.5%.

The Massachusetts pension fund dropped a relatively-low -3% and exceeded it’s benchmark by 1.5%, according to the Massachusetts Pension Reserves Investment Management (PRIM).

“We’re pleased to report that during the weakest market since the global financial crisis more than 13 years ago, the (Pension Reserves Investment Trust) fund performed very strongly,” said Michael Trotsky, executive director of PRIM, at a committee meeting Wednesday.

The fund dropped from $95.7 billion to $92.4 billion in fiscal 2022, remaining higher than any prior year. PRIM expects to compare favorably to other pension funds for the year, Trotsky said.

The fund has historically performed very well. The Massachusetts PRIT fund is the only pension fund the American Investment Council yearly Public Pension Study has ranked in the top five for private equity portfolio performance every year the study has been conducted.

In 2021, with markets soaring, the fund hit an all-time-high of 30% gross returns, outperforming its benchmark by a record 9%.

“Performing strongly in both up and down markets, we believe, is the hallmark of a very well constructed portfolio with proven skillful managers,” Trotsky said.

Trotsky explained the fund’s resiliency was due largely to diversified investment in private equity, real estate, timberland and hedge funds, which “helped buffer the downturn in the public markets.”

Private equity was up 27%, real estate was up 25%, timberland — which PRIM is one of the world’s largest owners of — was up 11%, and hedge funds were “essentially flat” in fiscal 2022, according to the PRIM meeting slides.

An un-mediated rise in inflation, faltering consumer and business spending, and weakening in corporate earnings are major risks PRIM staff continues to watch for, Trotsky said.

There are some encouraging signs in the market, Trotsky said, noting that for example, though the S&P 500 was down 10.6% for fiscal 2022, it rebounded 9.2% in July.

Mounting crises continue to hit the economy though, with the threat of recessions looming in the U.S. and around the globe.

“No one can really predict the future of the markets accurately over a long period of time. So with a fund of our size, we don’t try,” said Trotsky. … “No matter how the future unfolds, I’m confident that the PRIT fund will perform well.”