Madison, WI (March 15, 2019) – State of Wisconsin Investment Board (SWIB) Trustees approved incentive compensation awards based on the five-year investment performance that generated $224.5 million above benchmark returns after all costs for the fully funded Wisconsin Retirement System (WRS) Core Trust Fund. The incentive compensation payments total approximately $9.8 million and are 15 percent less than last year. The 2018 awards are the lowest amount paid in the past five years and represent only 2.0 percent of SWIB’s overall costs for managing $110 billion of assets.
SWIB’s investment performance over the past five years has contributed to continued stable contribution rates for active employees and provided four years of positive Core Trust Fund annuity adjustments for retirees. The investment earnings combined with SWIB’s cost optimization strategies and internal asset management are among the reasons the WRS remains one of the only fully funded public pension systems in the country. SWIB beat both its five- and ten-year benchmarks (on a gross and net basis) for the Core Trust Fund as of December 31, 2018. The five-year return gross of fees for the Core Trust Fund, the larger of the two WRS trust funds, as of December 31, 2018, was 5.2 percent; and the ten-year return gross of fees was 8.8 percent, which well exceeds the 7.0 percent assumed rate of the plan.
SWIB Trustees have implemented a plan that targets total compensation at the median pay of an approved peer group that does not include high paying east and west coast asset managers. The peer group is set by an independent compensation consultant. Incentive compensation is the pay-for-performance part of employee compensation and is based on an employee’s individual contributions to the success of the organization and trust fund performance. It is earned by staff primarily for investment performance that exceeds benchmark returns for the previous five-year period, which is longer term and aligns with calculating retiree adjustments. Performance benchmarks are set by the Trustees with advice from an independent benchmark consultant.
“SWIB prides itself on its cost-effective internal management program because it provides significant financial benefit to the WRS,” said David Stein, chair of the SWIB Board of Trustees. “Having a market-based incentive compensation program allows SWIB to hire and retain top industry talent and dedicated experts needed to maintain the retirement system and manage investment risk.”
“Investment management requires talented professionals with significant industry experience to manage SWIB’s investment strategies for the WRS trust funds,” said SWIB Executive Director and Chief Investment Officer David Villa. “Wisconsin’s pension system is one of the best in the nation and our goal is to keep it that way. We rely on our award-winning staff to execute robust and complex investment strategies that are designed to provide moderate protection during down markets while targeting long-term growth and reasonable returns that reflect the risk-sharing design of the WRS.”
SWIB optimizes its costs, invests in its infrastructure, and spends less than its peers. According to CEM Benchmarking, a global cost consultant, SWIB saved approximately $90 million in 2017 and $1.3 billion from 2007 to 2017 compared to peers, which is more than it spent in fiscal years 2016, 2017, and 2018 combined. The savings are driven in part by SWIB managing a majority of WRS funds internally. Internal management costs multiples less than the fees charged for similar services by external managers.
SWIB’s strong management of the WRS trust funds has helped fuel one of the only fully funded public pensions in the country on behalf of more than 632,000 current and former employees of state agencies, the university system, school districts and most local governments. The WRS is the 8th largest U.S. public pension fund and 25th largest public or private pension fund in the world. SWIB provides a strong, steady economic pillar for the state of Wisconsin by growing the trust funds under its management, managing risk, and optimizing costs over the long term. As of December 31, 2018, the WRS accounts for approximately 90 percent of the more than $110 billion of total assets under management at SWIB. In addition to the $100 billion in WRS trust funds, SWIB also serves the state by investing the assets of the State Investment Fund, University of Wisconsin System Trusts Funds, Injured Patients fund and other funds. For more information about SWIB, visit www.swib.state.wi.us.
SWIB 2019 Facts at a Glance