North Carolina’s state pension fund increased its asset value by $9.3 billion during 2020 to end the year at a record $114.9 billion after paying out more than $6.5 billion in gross benefits. The value of the fund has risen by 22%, or $20.7 billion, since the end of 2018.
The fund’s investment portfolio returned an estimated 11% for the year, easily surpassing the state’s 7% actuarial rate of return target—the third time in the past four years that the North Carolina Retirement Systems has exceeded its assumed rate of return. The fund returned 14.88% in 2019, lost 1.47% in 2018, and gained 13.53% in 2017. And for the first six months of the fiscal year that started July 1, the fund earned an estimated 11.6% rate of return.
The strong performance came despite a rough start to the year as the outbreak of the COVID-19 pandemic sent world markets tumbling and the market value of North Carolina’s pension fund falling to an estimated $93.6 billion on March 23. But the markets rallied after that point, as did the fund’s investments, which increased nearly 23% in value over the next nine months.
North Carolina State Treasurer Dale Folwell credited co-CIOs Christopher Morris and Jeff Smith and a conservative investment approach for the fund’s strong turnaround after a dismal first quarter. Over the past couple of years, Folwell has shifted approximately $11 billion worth of equities in the fund to more conservative fixed income investments.
“The largeness and strength of the state pension plan and staying the course on a decadeslong conservative management strategy instead of panicking and chasing risky get-rich-quick investment schemes led to a phenomenal year,” Folwell said.
The state treasurer’s office said that because the fund exceeded its investment return goal for the year, an additional $3 billion is available to help pay off $11.5 billion in unfunded liabilities carried by the Teachers’ and State Employees’ Retirement System. It also said this will add about $1 billion above expectations to help offset the state’s Local Governmental Employees’ Retirement System’s $3.3 billion in unfunded liabilities.
Folwell also said strong bond ratings from the three national rating agencies allow the state and local governments to save money by securing lower interest rates when taking on debt to fund capital projects.