The State of Wisconsin Investment Board (SWIB) today announced 2022 preliminary returns for the fully funded, $123 billion Wisconsin Retirement System (WRS).
The Core Fund, the larger of the two WRS trust funds with more than $114 billion in assets, ended the year with a preliminary one-year net return of -12.92% and preliminary five-year net return of 6.16%. The Core Fund’s 10-year and 20-year returns net of external manager fees continued to exceed the Core Fund’s target return of 6.8%. SWIB outperformed its benchmarks for all these periods.
Despite the challenges of the past year, which saw every public market asset class generate negative returns, including the S&P 500 return -18.11% and the Bloomberg U.S. Government/Credit Index return -13.58%, strong absolute investment returns in three of the past four years are expected to prevent any negative annuity adjustment for beneficiaries this spring and provide continued stable employer and employee contribution rates in 2024.
“The past year presented a unique set of challenges for investors navigating volatile financial markets,” said SWIB Executive Director and Chief Investment Officer Edwin Denson. “Investors faced concerns from persistent supply chain issues to the great resignation, to the Federal Reserve raising interest rates several times in an effort to counter the highest inflation rates in four decades. All of this was coupled with an environment where the typical diversification benefit between public equities and public fixed income deviated from historical trends leaving investors with nowhere to hide.”
SWIB diversifies its assets among many types of public and private investments and actively manages its assets to grow and protect the WRS trust funds. When looking over the last 20 years, SWIB’s active management and diversified holdings generated over $30 billion for the Core Fund above what SWIB would have earned by simply investing in a low-cost passive portfolio consisting of 60% global equities and 40% domestic bonds. On a preliminary basis, SWIB’s investment management has added value to the WRS trust funds of more than $2 billion above benchmark returns over the last five years.
“SWIB remains committed to its long-term investment strategy to keep annuity adjustments and contribution rates stable and deliver the benefits promised to the over 660,000 WRS participants,” SWIB Board of Trustees Chair Barbara Nick said. “Throughout the past year, SWIB staff worked diligently to weather this negative-return environment and to seek opportunities to maximize long-term returns at a prudent level of risk.”
The Variable Fund, an optional stock-only fund with more than $8 billion in assets, ended the year with a preliminary one-year net return of -17.82% and preliminary five-year net return of 6.49%. The Variable Fund’s 10-year and 20-year returns net of external manager fees were 9.82% and 8.83%, respectively.
The Department of Employee Trust Funds will soon provide estimated ranges for annuity adjustments for the Core Fund and the Variable Fund and announce actual adjustments in March. Investment performance also affects contribution rates for public employees and employers. Rates for 2024 will be set in June.
SWIB’s strong management of the WRS trust funds has helped fuel one of the only fully funded public pensions in the country for more than 663,000 current and former employees of state agencies, the university system, school districts and most local governments. The WRS consistently ranks among the 10 largest public pension funds in the U.S. 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 Dec. 31, 2022, the WRS accounts for approximately 86% of the more than $143 billion of total assets under management at SWIB. In addition to the more than $123 billion in WRS trust funds, SWIB also serves the state by investing the State Investment Fund, University of Wisconsin System Trust Funds, Injured Patients and Families Compensation Fund, State Life Insurance Fund, and Historical Society Trust Fund.