The Maryland State Retirement and Pension System’s investment portfolio lost 2.97%, net of fees, for the fiscal year ending June 30, but beat its policy benchmark’s loss of 3.48%. As they have been for many pension funds, the results were a sharp turnaround from last year, when the MSRPS earned record returns of 26.7%.
“As you would expect, given recent market conditions, investment returns are down from last year,” State Comptroller Peter Franchot, chair of the MSRPS board of trustees, said in a statement. “However, the system’s assets have held up better than most public plan peers.”
A news release from the pension fund attributes the loss to the ongoing volatility of global financial markets, inflation, rising interest rates, the COVID-19 pandemic and the Russia-Ukraine war. It also notes that bonds did not provide their typical protection in down equity markets, as both stocks and bonds lost more than 10% during the fiscal year.
However, the release says the fund’s portfolio performed significantly better than a traditional 60/40 allocation to publicly traded stocks and bonds, which it attributes to a diversified and risk-balanced asset allocation that is designed to weather market volatility extremes.
“It was a difficult fiscal year for public markets with both bond and stock prices falling,” CIO Andrew Palmer said in a statement. “The board’s diversified asset allocation policy anticipates unusual markets such as these and includes stabilizing assets classes to protect value.”Although the fund missed its new assumed actuarial rate of 6.8% for the fiscal year, which became effective July 1, the portfolio’s three-, five- and 10-year returns were 8.4%, 7.9% and 7.8%, respectively.
The portfolio was weighed down by its public equity investments, which lost 19.38% during the fiscal year, and which missed their benchmark’s return by 133 basis points. Rate-sensitive investments also underperformed, losing 15.28% for the year, below their benchmark’s loss of 13.70%. And multi-asset investments lost 19.04%, well off their benchmark’s loss of 3.48%; however, the asset class accounts for only 0.4% of the portfolio’s total asset allocation.
Real assets and private equity were the top-performing asset classes for the pension fund, returning 25.70% and 24.53%, respectively. The real assets investments significantly outperformed their benchmark, beating it by 582 basis points, while the private equity investments beat their benchmark’s performance by 53 basis points.