The $109 billion Florida Retirement System Pension Plan remains in its rosy position as one of the US’ best performing funds, exercising its scale to effect with a total expense ratio of 32 basis points for the financial year 2009-10.
The Florida State Board of Administration – which at June 2010 managed total assets of $1133.5 billion in 26 different investment funds, housing assets of 37 mandates and trusts, including the Pension Plan – had a total expense ratio of 24.6 basis points, or less than one quarter of 1 per cent. For the year, one basis point was the equivalent of $35.5 million.
According to the SBA’s annual report, the Pension Plan’s expense ratio was the third-lowest in the CEM Benchmark universe, and nearly 40 per cent lower than the median.
For the financial year the Pension Plan returned 14.03 per cent, 2.53 per cent ahead of target. “Exceeding its benchmark by 251 basis points is the largest margin of relative return to benchmark in 25 years,” according to board papers.
CEM says the cost savings were due to less external active management, less use of fund-of-funds and paying less than peers for similar mandates, according to a report which looked at the 5-year review of the fund in 2008.
The Florida Retirement System Pension Plan was the top performing US large pension fund for calendar 2009 as measured by Wilshire/TUCS, and while a top performer this year, it may be pipped at the post by the Teachers Retirement System of Texas, which in its most recent board meeting was claiming top spot.
One of the more enviable qualities of the Florida fund is its relatively realistic investment objective – which is to earn a compounded rate of return of 5 per cent plus inflation a year over the long run. Its actuarial investment return is 7.75 per cent.
Over the past 22 years more than 66 per cent of pension plan benefit payments have been funded by investment gains.
It was one of the few funds in the US to enter 2008 fully funded (it was 107 per cent funded), and that now sits at around 87.9 per cent.
It could be a precedent for other states which have multiple funds facing underfunded positions, with the FRS created in 1975 by combining a number of state and local pension funds, all grossly under-funded. The initial funded ratio of the combined fund was below 50 per cent.
The strategic investments part of the portfolio was the best performer for the fund, up 18 per cent for the 12 months to September, mainly due to investments in opportunistic debt. That part of the portfolio which can be as high as 20 per cent in the strategic allocation, also invests in credit funds, residential and commercial real estate, corporate governance activist funds, timberland, infrastructure and hedge funds.
The Florida Pension Plan’s consultants are: Wilshire for public markets, Townsend Group for real estate, Hamilton Lane for private equity, and Cambridge Associates for hedge funds
FRS Pension Plan asset allocation at June 30, 2010
| asset class | target allocation |
| domestic equities | 35.6% |
| foreign equities | 18.9% |
| fixed income | 28.5% |
| high yield | 2.1% |
| real estate | 6.5% |
| private equity | 4.1% |
| strategic investments | 4.1% |
| cash | 0.4% |
