Internal management of the trust funds by staff at SWIB has reached an all-time high and the end result has been a significant financial benefit to the WRS.
SWIB has built a strong internal management program. Since 2007, SWIB has moved from managing 21% of WRS assets internally to more than half today. SWIB actively manages assets not only to earn more than the passive market indexes, but also to do so with the ability to better manage risk and control costs.
The objective of SWIB's investment strategy for Core Fund investments is to earn returns comparable to the actuarial objective of 7.0% over the long-term, but with less risk than the typical 60% global equities/40% U.S. investment grade bonds portfolio. Diversification is the primary tool for managing risk. By actively managing assets and putting in place those diversification strategies, SWIB is working to stabilize returns, contribution rates and annuity adjustments.
Internal Management Results in Financial Benefit to Trust Funds
According to CEM Benchmarking, an independent provider of objective benchmarking for public pension plans, pension funds with more internal management typically perform better on a net return basis over the long term.
SWIB balances its use of internal active management with passive management. SWIB uses more passive management than other large public pension funds, according to CEM Benchmarking. Approximately 39% of WRS funds are managed passively. Passive management is effective for earning market returns at a lower cost. The combination of active internal management as well as passive management has helped contribute to adding an additional $759 million to the trust funds above market returns over the past five years, ending Dec. 31, 2017.