According to a newly released annual report, the West Virginia Investment Management Board had a good, but not great, 2018-19 budget year managing the state’s portfolio of nearly $20 billion in investments.
State pension funds, which account for the vast majority of the investments, grew in value by 6.0 percent for the year — less than the 7.5 percent benchmark needed to fully fund pensions for public employees, teachers and judges — as total IMB assets grew from $19.51 billion on June 30, 2018, to nearly $19.99 billion.
However, over the past 10 years, those investments have averaged 10.2 percent annual growth, exceeding the goal of 8.5 percent annual growth over 10-year time periods.
During that time, total IMB assets have grown from $10.76 billion.
In the report, IMB Executive Director Craig Slaughter noted that the 2018-19 budget year got off to a strong start, with “continued evidence of economic growth, and expectations for the abatement of trade tensions between the U.S. and China.”
However, by the second quarter of the fiscal year, unresolved trade talks and weak growth in international markets led to a dramatic pullback in U.S. and international stock markets.
“Halfway through the fiscal year, markets were down across the board,” Slaughter stated.
That turmoil led the Federal Reserve to hold off on interest rate hikes, which, along with seemingly constructive progress on trade talks, helped calm the markets, he said.
“As the fiscal year ended, U.S. growth appeared to stabilize while the Fed appeared to be signaling a rate cut,” he wrote. “This helped to shore up the capital markets even as China/U.S. trade tensions continued to fester.”
Ultimately, that led the IMB to experience what Slaughter called relative underperformance for the year, with 6.0 percent growth in pension fund assets.
However, he noted that, over the past 10 years, the IMB has averaged a 10.2 percent annual return on investments, including double-digit investment earnings years in 2016-17, 2013-14, 2012-13, 2010-11 and 2009-10, with earnings of 20.7 percent in 2010-11 marking the strongest annual earnings in the 22-year history of the IMB.
Looking forward, Slaughter said that, while he believes the 7.5 percent annual earnings targets are achievable “over very long time periods,” he warned that it will be very difficult to achieve that rate in the near future.
“As one looks out on the horizon, there are many concerns,” he wrote. “The current economic expansion has been one of the longest on record. China has become a major rival to the U.S., creating geopolitical tensions with far-reaching ramifications.”
He added, “Meanwhile, the disparity between the haves and the have-nots has spawned a global wave of populism threatening the underpinnings of an economic order that has, despite its faults, raised unprecedented numbers out of poverty around the globe.”
The IMB was formed in 1997 to use modern investment strategies in an attempt to deal with massive unfunded liabilities in the Teachers Retirement System and the Public Employees Retirement System.
Starting out with about $4.5 billion in assets, the IMB has grown those assets to nearly $19.99 billion as of June 30. As of June 30, that includes about $7.84 billion in TRS and $6.89 billion in PERS.