PSPRS fund realizes 12.5 percent gross returns

September 27, 2017

Contact: Christian Palmer
Phone: 602-296-3736

PSPRS fund realizes 12.5 percent gross returns
Nearly $1 billion generated as trust reaches $9.3 billion

PHOENIX – Arizona’s Public Safety Personnel Retirement System earned a 12.5 percent gross of fee return on its investments during the 2017 fiscal year, marking an outstanding rebound after flat markets held gains to less than one percent the previous year.

The return added $1 billion to the trust even as PSPRS-managed plans distributed approximately $1 billion in benefits to retirees and survivors and primarily into the Arizona economy. The total value of the PSPRS trust at the fiscal year-end is $9.3 billion.

“We’re extremely pleased to achieve double-digit returns while we continue to operate with less risk than 96 percent of our peer pension plans,” said PSPRS Chief Investment Officer Ryan Parham. “This level of return without heavy investment in domestic stocks is great news for PSPRS employers and testament to the skill of our investment team.”

The gains are welcome, especially as many employers struggle with high public safety pension expenses and low funding levels. Given the low-risk strategy of the portfolio, PSPRS has emerged as an elite performer for maximizing investment return while operating with minimal risk.

The fund ranks among the top 1-to-4 percentile of 55 peer pension funds for three common risk and volatility measurements (annual standardized deviation, Sharpe Ratio and Sortino Ratio) during the past 3 and 5-year periods.

On a net of fee basis, PSPRS generated an 11.85 percent return and exceeded its 10.84 percent benchmark, in addition to surpassing benchmarks set for the past 3, 5 and 10-year periods. PSPRS net of fee returns exceed the system’s 7.4 percent assumed earnings rate over 5 and 7-year periods but fell below the assumed rate over the past 10-year period that includes losses due to the Great Recession in 2007 and 2008.

The high PSPRS gains of fiscal year 2017 were fueled by strong returns in stock markets and alternative asset classes, including private equity and real assets. The PSPRS portfolio is among the most diversified public pension trusts in the nation and it has outperformed the vast majority of more than 100 retail consumer mutual funds with similar asset allocation and investment strategies. 

PSPRS was named “Asset Allocator of the Year” this year by Institutional Investor magazine while Parham was again named among the nation’s Top 30 Public Pension Chief Investment Officers by Trusted Insight magazine.

The 2017 fiscal year investment returns will result in a permanent benefit increase (PBI) to retirees of the Elected Officials Retirement Plan (EORP) and the Corrections Officer Retirement Plan (CORP), both of which are managed by PSPRS.

Under state law, investment returns must exceed 9 percent in order to trigger pension benefit increases. However, 2016 pension reforms spearheaded by lawmakers and organizations representing Arizona’s police officers and firefighters replaced the PBI mechanism for public safety members with a cost-of-living-adjustment that will start in 2018. 

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