There are many reasons for Wisconsin to be proud. The Packers and Badgers easily come to mind. One reason that may not come as quickly to mind is the State of Wisconsin Investment Board's (SWIB) effective management of $100 billion in assets that benefits the 600,000 participants in the Wisconsin Retirement System (WRS).
In a time when public pension funds across the country are underfunded and struggling, the WRS benefits from the skill and dedication of SWIB's employees. Our team has helped fuel one of the best-funded pension systems in the U.S. Over the past five years alone, SWIB staff has added $1.2 billion to the trust funds above what the markets earned. These above-market returns have helped make the WRS one of only a few well-funded public pension plans in the country. Moreover, SWIB's investment earnings account for 73 percent of the total income of the WRS, keeping in check contributions paid to the plan. As Trustees of SWIB, we are proud of this performance.
Not only has SWIB's performance beaten the market, it has done so at lower costs than our peers. SWIB uses internal staff to manage almost two-thirds of the plan's assets. And these talented individuals invest money for approximately one-fifth of what it costs to use external managers, all while generating solid returns. Every dollar saved through efficient management is just as good as a dollar earned through investment returns. Building a stronger internal management program has been a significant benefit the retirement system. Compared to 2007, when SWIB managed only 21 percent of our assets in house, we save $75 million per year compared to what similar funds would pay to manage the same assets. Over the past 10 years, we have saved the WRS $344 million compared to similar pension funds, in large part because of the move away from using as many external managers.
The key to SWIB's successful internal money management is its ability to attract and retain highly qualified professionals, which has been made possible due to SWIB's true pay for performance compensation plan. Investment management is a specialized skill, and competition for staff comes from the private sector. As Trustees, we have implemented a plan that establishes total compensation similar to compensation at large financial institutions such as banks and insurance companies, but excludes highly paid money managers on the East and West coasts. By virtually any measure, this strategy is working, and allows SWIB to hire and retain the skilled talent it needs.
SWIB's investment strategy is designed to weather a variety of economic environments to ensure the WRS meets its obligations today and in the future, by diversifying these investments. This diversification means returns may trail other pension funds when the stock market is performing well, but will not dip as low when the markets are negative.
As Trustees, we take our fiduciary duty very seriously. As business professionals in both the private and public sectors, we also understand the difference between value and cost. And while some people may flinch at the compensation we pay our investment staff, we know these individuals deliver value for the WRS, the State of Wisconsin and its taxpayers. The SWIB model and the dedicated team that runs it, is one reason the WRS consistently sits atop national public pension plan rankings - a fact of which we can all be proud.
David Stein is chair of the nine-member independent SWIB Board of Trustees, who establish investment guidelines, policies and compensation as well as monitor investment performance of the Investment Board staff. Trustees have a fiduciary responsibility to act solely in the best interest of funds under SWIB's management, including the Wisconsin Retirement System.
Click here for SWIB's incentive compensation press release.