The State of Wisconsin Investment Board (SWIB) today announced preliminary 2019 year-end returns for the fully funded Wisconsin Retirement System (WRS).
The Core Fund, the larger of the two WRS trust funds with more than $108 billion in assets, ended the year with a preliminary gross return of 19.9 percent and preliminary five-year and ten-year gross returns of 7.8 percent and 8.6 percent, respectively. SWIB performed better than its performance benchmarks for all these periods. To help ensure the pension fund can meet its obligations, SWIB focuses on the long term and not only short-term results. SWIB’s preliminary ten-year gross return along with the one- and five-year returns all exceed the long-term WRS investment target of 7.0 percent.
“We are proud of the strong performance in 2019 but we remain aware of the economic and geopolitical risks that create headwinds for future returns,” David Villa, SWIB executive director and chief investment officer, said. “The support of the beneficiaries, local and state governments, and our award-winning Board of Trustees allows SWIB to follow a long-term strategy to invest in active management through recruiting and retaining talented professional staff and growing our internal infrastructure and technology. Our strategy is designed to add additional value beyond what the markets provide and to fulfill our mission to support public workers’ retirement security.”
SWIB diversifies its assets among many types of public and private investments, optimizes its costs (which saved it $54 million over its peers in 2018 and $1.3 billion over the last ten years) and actively manages its assets to grow and protect the WRS trust funds. When looking over a twenty-year period through December 31, 2019, SWIB’s active management and its diversified holdings generated $37.1 billion dollars for the Core Fund above what SWIB would have earned by simply investing in a low-cost passive portfolio consisting of 60 percent global equities and 40 percent domestic bonds, assuming no contributions or withdrawals. On a preliminary basis, over the last five years, SWIB’s investment management has added value to the WRS trust funds of about $545 million above market returns.
“Through a combination of skill-based portfolio allocation and construction techniques that generally outperform passive market indexes over the long term, SWIB is working to add value to the trust funds so that we can help deliver the promises made to the over 635,000 participants in the system,” Villa said. “As we look to an uncertain economic future, this strategic approach becomes even more critical to maintain a fully funded pension system.”
The Variable Fund, an optional stock-only fund with more than $8.7 billion in assets, ended the year with a preliminary gross return of 28.6 percent and a five-year preliminary gross return of 9.8 percent and ten-year preliminary gross return of 11.2 percent. The Variable Fund performed better than its performance benchmarks for all these periods.
The Department of Employee Trust Funds will determine annuity adjustments for the Core Fund and the Variable Fund in March after an actuarial analysis is completed. Investment performance also affects contribution rates for public employees and employers. Rates for 2021 will be set in June.