Maryland Plan Misses Target, Lowers Assumptions

Private equity again rises to the top, but it’s not enough to help the fund clear its benchmark.

The Maryland State Retirement and Pension System (SRPS) returned 6.46% in the fiscal year ended June 30, growing the fund’s assets to $54.2 billion, but it missed both its 7.11% benchmark and 7.45% assumed rate of return.

The standout performer was again private equity, returning 13.7% over the period. It was also the only space to reap double digits, although rate-sensitive assets came close at 9.3%.

“The System’s returns reflect strong performance of private equity assets and nominal fixed income assets along with positive but more modest returns in the remainder of the asset classes,” said Andrew C. Palmer, the fund’s chief investment officer.

Credit and real assets returned 6.5% and 5.3%, respectively. The biggest laggards, however, came from multi-asset strategies, public equities—its largest allocation—and absolute return, which returned 4.4%, 3.9%, and 3%, respectively.

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The fund returned 8.06% the year prior. It’s three-, five-, and 10-year returns have been 8.17%, 5.62%, and 8.61%.

In other news, the fund’s trustees voted to reduce the rate of return by five basis points at its July board meeting, to 7.40%. Reductions come as mortality rates have declined over the past four years.

The decision came after a study of different hypothetical scenarios by the pension’s consultant, Gabriel Roeder Smith, testing different rates of return and assumed price inflation.

And the winning assumptions: 7.40% investment return, 3.10% wage inflation, and 2.60% inflation—pegged against an alternative assumption of 7.30% return, 3.00% wage inflation, and 2.50% inflation.

“Aggregated results…indicate that the overall MSRPS-state funded ratio increases and the contribution amounts decrease…due to assumption changes only,” the consultant noted in its report.

The total findings for each alternative assumption are summarized below.

Source: MSRPS

“The Board’s prudent action today is in recognition of ongoing changes in the financial markets, while continuing to achieve the investment returns required for the System over the long term,” said State Treasurer and MSRPS Board Chair Nancy K. Kopp.

The news was announced several days ahead of returns.

Maryland SRPS’s asset allocation is 36% public equity, 18.1% rate-sensitive assets, 14.1% private equity, 13.3% real assets, 8.9% credit, 7.4% absolute return, 1.3% multi asset strategies, and 0.5% cash.

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