Massachusetts Pension Reserve Investment Management, which manages the assets of the state’s public pension funds through the Pension Reserves Investment Trust, reported a 12.7% return for fiscal 2026, investment staff announced at an August 4 committee meeting.
The fund underperformed its total capital fund benchmark return of 14.8%, and reported annualized three-, five- and 10-year returns of 10.6%, 6.7% and 9%, respectively, against benchmarks of 12%, 7.8% and 8.9%.
Despite the strong performance, which was driven by very strong global equity returns, MassPRIM’s CIO, Michael Trotsky, said the equity markets have become increasingly concentrated in a handful of companies and themes.
“The S&P 500 is no longer technically defined as a diversified portfolio by the [Securities and Exchange Commission] … [and] a similar dynamic has emerged in emerging markets, where the MSCI Emerging Markets Index has been so concentrated to South Korean semiconductor [companies], namely Samsung and SK Hynix,” Trotsky said during the meeting.
Under the SEC’s legal definition under the Investment Company Act of 1940, a fund is considered diversified if no more than 5% of its assets are in a single company and no more than 25% can be allocated to a large concentration across 10 or fewer stocks, according to a 2024 report from Horan Wealth.
MassPRIM ended the fiscal year with record assets of $129.5 billion, with PRIT assets rising $14.1 billion during the fiscal year.
“That’s the largest fiscal year end value in PRIM’s history,” said Trotsky. “This is the fund’s strongest fiscal-year return in 5 years and is well above its 9% historical return since inception.”
It is also the first time in 20 years that the fund reported positive returns across all asset classes in consecutive years, Trotsky noted, adding that PRIM deployed $3.4 billion into new investments during fiscal 2026.
Global equities were the fund’s best-performing asset class, with a 24.2% return, followed by portfolio completion strategies (9.1%), value-added fixed income (5.3%), private equity (3.6%) on a one-quarter lag, core fixed income (3.4%) and timberland (3.1%).
“Our 12.7% net one-year return far exceeded our most important goal, and that goal is the 7% actuarial rate of return,” Trotsky said. “However, we are not pleased with the 2[-percentage-point] relative underperformance of the fund when compared to its capital fund benchmark, and nearly all of the relative underperformance is due to private equity.”
He added that private equity has been the fund’s best-performing asset class over the long term.
Trotsky noted the private equity benchmark underperformance was due to the fact that private equity is measured against a public markets index plus a 3% illiquidity premium. The sustained outperformance in global equities has far outpaced returns from alternative investment strategies, making it very difficult for private assets to match public equities’ performance.
Only global equities, private equity and timberland underperformed their respective benchmarks of 24.7%, 11.1% and 4.9%. U.S. small-cap equities were the fund’s best-performing strategy, with a 41% return, followed by emerging markets equity (38.7%) and U.S. large-cap equities (22.1%).
Within PRIT’s private equity allocation, growth and buyout strategies are underweighted to the artificial intelligence, space and defense themes, Trotsky noted.
“Unfortunately, we have missed some of the largest price moves in venture capital. For example, we completely missed the $1.7 trillion IPO of SpaceX, the rise [of] OpenAI, and many others,” Trotsky said. “PRIM has had little to no exposure to the recent highfliers, mainly because venture capital managers in this space have historically been reluctant to accept any public pension money. In other words: We don’t have access to these managers. They mainly attract capital from endowments, foundations, family offices and sovereign wealth funds.”
Despite market concentration, both in public equities and within public equity indexes, Trotsky emphasized the importance of being a diversified investor in the long run.
“Fiscal 2026 relative underperformance reflects a market backdrop where concentration, and not diversification, has been rewarded, yet PRIM still believes maintaining diversification remains the right long-term discipline for a fund of PRIT’s size and liability profile, even when it is out of favor in the short term,” Trotsky said.
Of the fund’s total return, 73% was attributed to public equity asset strategies, which “speaks loudly to the narrowness in performance,” Trotsky said.
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Tags: Massachusetts, Massachusetts Pension Reserves Investment Management (MassPRIM), Michael Trotsky