Bacon's Rebellion

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VRS Earned Above-Average Return in Fiscal 2017

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by

James A. Bacon
in

A welcome piece of good news from state government: The Virginia Retirement System earned an 11.8% return on investment for the fiscal year ending June 30. The performance exceeded the 7% average return the system assumes for purposes of setting state and local contributions, and it is a big improvement from the previous two years. VRS assets now stand at a historic high of $74 billion, reports the Richmond Times-Dispatch.

Those numbers came from Del. Robert D. Orrock Sr., R-Caroline, after a semiannual meeting of the Joint Legislative Audit and Review Commission (JLARC) yesterday. The T-D article did not break down the overall VRS performance by investment category.

According to a March 31 VRS performance summary dated March 2017, investment returns over the first three quarters of the fiscal year were led by a strong performance of the pension fund’s equity portfolio, but most other investment categories did well, too:

Public equities — +13.2%
Investment-grade fixed income — -1.1%
Credit strategies — +8.0%
Real assets — +8.0%
Private equity — +12.2%
Strategic opportunities portfolio — +8.1%

The above-average performance may forestall the perceived need to undertake any additional reforms of the state pension fund or for state and local governments to increase their contributions. A year ago, VRS unfunded liabilities were pegged around $22 billion. The big question now: Can VRS replicate the performance next year? Can U.S. and global stock market averages continue their levitating act?

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4 responses to “VRS Earned Above-Average Return in Fiscal 2017”

  1. djrippert Avatar
    djrippert

    What return did the UVA slush fund achieve?

  2. LarrytheG Avatar
    LarrytheG

    so much for the gloom and doom about quantitative easing, eh?

    1. djrippert Avatar
      djrippert

      This is what everybody knew would happen with quantitative easing. It would flood the market with money which, in turn, would hold interest rates down. Low interest rates favor equities over debt so you get what you’re seeing – a runaway bull market in equities. The concern has always been about longer term consequences. Quantitative easing was supposed to spark a re-ignition of inflation. That never happened for a variety of reasons. It was also expected to drive up the deficits and overall debt – which definitely did happen. This has the distinct potential to create a credit squeeze whereby rising interest rates (and they will rise eventually) requires the government to “roll over” its debt at higher and higher interest costs. This either increases the deficit spiral or forces the government to curtail spending on things other than interest in order to pay the interest on the debt. Of course, given our government, the possibility of raising taxes is always a possibility too. Finally, cheap money encourages people to borrow and that has the potential to create credit bubbles which eventually will pop. The student debt bubble seems a likely next place for that pop.

  3. Steve Haner Avatar
    Steve Haner

    Only a fool plans on the basis of anything but a long time-frame rolling average. This will tick that up, but only a bit and maybe not for long.

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