PSPRS generates $580 million in returns for FY19

October 7, 2019

Public Safety Personnel Retirement System
State of Arizona
October 7, 2018

Contact: Christian Palmer
Phone: 602-296-3736

PSPRS generates $580 million in returns for FY19

5.5 percent net returns for year while long-term returns point to recovery

PHOENIX – Arizona’s Public Safety Personnel Retirement System generated 5.5 percent net of fee returns last fiscal year, producing $580 million for the trust serving Arizona’s firefighters, police officers, corrections officers, elected officials and judges.

In doing so, trust assets now exceed more than $10.5 billion. Public and private equities in the PSPRS portfolio produced substantial returns, while prerecession legacy real estate investments and global trading strategies impacted overall returns negatively for the one-year time frame ending June 30.

“Our investment strategy is doing exactly what it is designed to do – balance risk to protect our employers while generating returns to bring PSPRS-managed funds back to financial health,” said PSPRS Board of Trustees Chairman Will Buividas. “We’re pleased that our alternative assets performed well and that investment returns over longer and more important time frames are beating our assumed earnings rate.”

While falling below the 7.3 percent assumed earnings rate for one-year and five-year timeframes, PSPRS investments outperformed the assumed earnings rate over the seven-year and 10-year periods. PSPRS generated 8.2 percent annualized net of fee returns over the 10-year period, making it an elite national performer for risk-adjusted returns.

Excluding late-1990s and early-2000s legacy real estate investments made before the hiring of any current PSPRS investment team members, the agency’s investments produced a 9.3 percent returns for the 10-year period.

“This is a solid performance for a balanced, low-risk portfolio that doesn’t get the same advantage that a stock-heavy portfolio does over the course of a bull run that has lasted for 10 years,” said Chief Investment Officer Mark Steed. “It speaks volumes about the PSPRS investment team, who are gaining national attention, and we’re in a good position to continue improving the trust’s financial stability.”

In July, PSPRS was honored by the American Investment Council, a national investment industry trade group, which found the agency’s private equity portfolio performance ranked fifth out of 165 peer public pension plans. The study tracked 10-year private equity performance for the period ending July 30, 2018.

On a gross of fee basis, PSPRS investments generated 6.05 percent returns. Each year, PSPRS investment expenses average to about half a percent to six-tenths of one percent of assets under management. However, many investment management fees are reimbursed when investments mature and are sold.

For the 2018 fiscal year, PSPRS increased its funding level by 0.5 percent, to 45.8 percent. Sister funds CORP and EORP also trended positively for the year, with CORP gaining 4.6 percent, to 54.1 percent funded status, and EORP gaining 0.6 percent to reach a 31.3 percent funded status. Updated fiscal year 2019 aggregate and individual employer funded status and contribution rates will be available in December.

The long-term health of PSPRS-managed funds will also be assisted with the 2016 and 2018 voter approval of propositions 124 and 125, which mandates increasing retiree pensions with cost-of-living-increases based on federal inflationary measures. The propositions limit annual pension increases to 2 percent and replace the former Permanent Benefit Increase (PBI) that was based on PSPRS investment performance. These changes were supported by the PSPRS Board of Trustees to the Legislature and were also endorsed by public safety employee associations.

PSPRS is governed by a nine-member board consisting of members of PSPRS-managed plans and civilian investment and financial experts.

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