Washington State Investment Board Returns 10.04%

The returns beat pension system peers and are the result of the investment organization’s large commitment to private market investments.

The $100 billion Washington State Investment Board (WSIB) posted investment returns of 10.04% for the 12-month fiscal year ending June 30 net of fees, outpacing the returns of other large public pension plans in the US, show data provided to CIO.

The investment board’s returns beat bigger rivals like the $360 billion California Public Employees’ Retirement System (CalPERS), which had an 8.6.% return, the $223 billion California State Teachers’ Retirement System (CalSTRS), which had a 9% return, and the $160.4 billion Florida Retirement System, which posted an 8.99% return.

The Washington State Investment Board also beat its own custom benchmark of 9.67% and the Wilshire Trust Universal Comparison Service median rate of return of 8.49% for US pensions with at least $1 billion in assets.

How did Washington State Investment officials beat its peers? The system issued no press release on the returns and Chief Investment Officer Gary Bruebaker was on vacation and unavailable for comment.

Washington State Investment Board officials have said in the past that the system’s major allocation to private markets has been an advantage in seeing better returns than other pension systems. Private equity and real estate make up almost 40% of the system’s assets under management, a figure unheard of at other public pension plans.

An analysis by CIO backs that up, showing the system’s large allocation to private markets compared to peers was a key factor in its outsized returns.

Private equity, for example, was WSIB’s biggest-producing asset class in the June 30 fiscal year, with a 15.84% return. The pension organization’s allocation to private equity is also big, $20.6 billion, the second-largest allocation in the US next to the $27 billion private equity program run by CalPERS.

However, what’s even more striking is that private equity makes up 20.6% of the total assets under management at the Washington State Investment Board co-mingled pension trust. CalPERS officials have struggled to maintain an 8% private equity allocation, and as of July 31, the private equity allocation percentage of the total fund had shrunk to 7.6%

The WSIB, which was a pioneering investor in private equity back in 1981, continues to maintain its high allocation to the asset class even as demand to get into funds run by the best-producing private equity players has increased. Private equity general partners have turned away some institutional investors because their funds have been oversubscribed.

WSIB’s second-largest returns in the June 30 fiscal year came from real estate, which produced returns of 14.84%. It also had a large real estate asset class in the comingled pension trust, its $17.1 billion real estate asset class, which makes up 17.2% of its total portfolio.

That compares to CalPERS, which has a $31.9 billion real estate  portfolio, but it only accounts for 8.9% of the total portfolio. The Washington State Investment Board’s real estate portfolio is one of the largest percentage-wise of any pension plan in the US.

WSIB’s real estate portfolio also did better than that of CalPERS and most other pension plans.

While Washington State produced real estate returns of 14.84% in the June 30 fiscal year, CalPERS’s overall real estate portfolio, for example, saw returns of 6.8%.

The Washington State Investment Board’s third-best producing asset class was public equities, which produced returns of 11.42%. But this is where the pension is different than other US public pensions. Its $34.6 billion allocation to public equities makes up only 36.4% of the overall pension plan assets under management. Most pension plans in the US have a more than a 50% allocation to equities even as plans have reduced exposure and embraced more private market investments.

The Washington State Investment Board’s worst-performing large asset class was fixed income; the $21.8 billion portfolio produced just a 0.02% return in the June 30 fiscal year.

The Washington State Investment Board’s one-year results are no fluke. It has constantly outperformed other pension plans over the three- and five-year periods. Over a three-year timeframe ending June 30, the pension plan saw an 8.62% return compared to the Wilshire database of public funds median return of 7.18%.

Over a five-year period ending June 30, the WSIB saw a return of 9.5% compared to the Wilshire database median of public pension plans of 8.23%.

The WSIB did slightly underperform the Wilshire pension database on a 10-year basis, which includes the ending period of the great financial crisis. Its aggregated 10-year returns were 6.61% compared to the Wilshire’s median return of 6.69%.

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