Wisconsin pension fund managers received bonuses totaling $9.8 million for 2018, which is 15% lower than the $11.6 million they received last year, and 30% below the $14 million they made in 2016, according to the State of Wisconsin Investment Board (SWIB).
The incentive compensation awards were based on a five-year investment performance that generated $224.5 million above benchmark returns after all costs for the fully funded Wisconsin Retirement System (WRS) Core Trust Fund. The 2018 awards are the lowest amount paid in the past five years, and represent only 2% of SWIB’s overall costs for managing $110 billion of assets.
SWIB has implemented a plan that targets total compensation at the median pay of an approved peer group set by an independent compensation consultant. It is earned for investment performance that exceeds benchmark returns for the previous five-year period that are set by the trustees with advice from an independent benchmark consultant.
“SWIB prides itself on its cost-effective internal management program because it provides significant financial benefit to the WRS,” David Stein, chair of the SWIB Board of Trustees, said in a release. “Having a market-based incentive compensation program allows SWIB to hire and retain top industry talent and dedicated experts needed to maintain the retirement system and manage investment risk.”
SWIB beat both its five- and 10-year benchmarks on a gross and net basis for the Core Trust Fund as of Dec. 31, 2018. The five-year return gross of fees for the Core Trust Fund, the larger of the two WRS trust funds, was 5.2% as of the end of 2018, and the 10-year return gross of fees was 8.8%, beating the benchmark returns of 4.9% and 8.2% respectively, and well above the 7.0% assumed rate of return for the plan. For 2018, the fund lost 3.3%, ahead of its benchmark’s loss of 3.5% for the year.
The smaller variable fund matched its benchmark’s five-year return of 5.9%, and its 10-year return of 11.7% beat the benchmark’s return of 11.3% for the same period. However, the fund’s 2018 loss of 7.9% was slightly larger than the benchmark’s loss of 7.8% for the year.
SWIB says that because it places a greater reliance on internal management, it saves $75 million per year compared to what other public pension fund peers would pay to manage the same assets. SWIB claims that over the past 10 years, it has saved $410 million compared to similar funds in large part due to the use of internal investment staff.