SWIB Management Audit

December 20, 2018

The Legislative Audit Bureau (LAB) has released its biennial management audit of SWIB. LAB conducts program evaluation audits of state agencies on behalf of the Legislature. 

 

Key Points

LAB's audit report focuses on investment performance of the Wisconsin Retirement System, investment and operating expenses, compensation and staff retention, and Wisconsin investments. Below is some additional information with respect to the information covered by the LAB audit report. 

  • Strong Performance:  SWIB’s investment returns rank second among its peers when accounting for the WRS’s goals and its fully funded status.

    • Both the Core Fund and Variable Fund beat their one-, three-, five- and ten-year benchmarks at the end of 2016 and 2017. The 30-year average annual investment return for the Core Fund was 8.9 percent as of December 2017.

    • As of September 30, 2018, the Core Fund annualized 10-year return was 7.98 percent, which exceeds the long-term investment target of 7.2 percent.

    • SWIB’s fully funded status creates a different risk profile and tolerance compared to peers.  SWIB does not need to chase returns to meet its investment target.

    • SWIB has invested WRS assets more conservatively than its peers to limit risk, which is shared by participants, annuitants, and employers.

    • Because of the risk sharing design of the WRS, SWIB's investment strategy is disciplined, balanced and focused on long-term results and designed first to help protect the plan from the impact of another major market downturn and then to earn reasonable returns.

    • SWIB’s investment strategy has met its goals.

  • Informed and Balanced Approach to Risk:  SWIB has conducted robust investment stress testing for years to evaluate and strengthen its investment strategy.

    • SWIB conducts stress testing with ETF’s actuaries based on sustained market downturns, covering 10-, 20-, and 50-year time horizons and 90% of the potential outcomes.

    • A 2018 Pew Charitable Trust study published by Harvard University that conducted stress tests on multiple public pension plans found Wisconsin to be the most robust plan it tested, remarking that “Wisconsin – by designing its pension plan with significant risk-sharing elements in addition to a strong funding policy – serves as an exemplar for managing cost volatility under virtually any scenario.”

  • Cost Optimization:  SWIB optimizes its costs, invests in its infrastructure, and spends less than its peers.  SWIB diligently tracks and reports its costs.

    • Compared to its peers, SWIB saved approximately $90 million in 2017, and $1.3 billion from 2008 to 2017, due to having fewer high cost assets and more internal management.

    • SWIB uses its own staff to manage more than half of the WRS assets internally, which is a better value for the trust funds.

    • In 2016, SWIB implemented a new enterprise resource planning (ERP) system and has since enhanced its tracking and reporting of costs and projects.

  • Recruiting Top Talent:  SWIB actively recruits top talent to hire the best qualified candidates to work on behalf of the WRS.

    • Finding the best qualified candidates is the chief objective in SWIB’s hiring process.

    • SWIB successfully recruited top talent from premier investment management firms in 2018 in part through a focused effort in building a talent pool from its employees’ networks.

    • SWIB actively recruited top candidates in 2018 to fill 43 positions and build its infrastructure.  These positions required necessary skills with significant investment industry experience.

 

Need More Information?

Click here to contact SWIB with questions or for more information about the audit report. 

Click here to read SWIB's response to the audit.

Click here to read the full audit report.

 

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