FOR IMMEDIATE RELEASE
Frankfort, KY (August 17, 2020) – Thanks to strong portfolio performance in the April-June period, as markets rebounded from second-quarter negativity related to the then-emerging Covid-19 pandemic, Kentucky Retirement Systems (KRS) closed out its fiscal year on June 30 with individual fund returns ranging from 2.36% for the Kentucky Employees Retirement System-Non-hazardous pension plan to 0.2% for the KERS-Hazardous insurance plan.
In all but one case, the 12-month performance for KRS' 10 pension and insurance funds exceeded those funds' respective benchmark returns. The KERS-Non-hazardous plan, for example, beat its benchmark by 1.29 percentage points. The State Police Retirement System pension plan beat its benchmark by 1.14 percentage points.
Assets as of June 30 stood at $18.2 billion, composed of $12.7 billion in the pension funds and $5.5 billion in the insurance funds.
For the nine months through March 31, the collective return of the five KRS pension funds was -7.14% and the return for the five insurance funds was -7.41%. That was due largely to portfolio losses of around -12% for both groups of funds in the January to March period. But from April 1 to June 30, the pension funds earned 8.93% and the insurance funds earned 8.52%, giving them fiscal year returns of 1.15% and 0.48%, respectively.
Compared with its peers, KRS' overall investment return of 1.2% for the fiscal year trailed the median 3.59% one-year return for peer pension plans observed by consultant Wilshire Associates. That relative underperformance compared with other plans is a reflection of the fact that KRS invests more conservatively than better funded pension plans, due to its lower funded status.
KRS' pension and insurance plans have fewer assets invested in equities than their peers, according to data from Wilshire. That helps explain some of the underperformance KRS saw relative to its peers.
Over the five years ended June 30, KRS' Sharpe ratio, a measure of investment return per unit of risk, was higher than the average pension fund's, according to Wilshire. That shows KRS is getting more return for the risk it's taking than the average pension fund.
"All of our 10 portfolios continue to be managed conservatively with a unique approach to how the asset classes are grouped for asset allocation purposes," said David Eager, KRS Executive Director.
Over longer periods, KRS's investment performance compares favorably with its benchmarks and with its assumed rates of return.
For example, collectively KRS' pension funds have produced returns that exceeded their benchmarks in trailing 3-, 5- and 20-year periods through June 30. Over the past 10 years, all pension and insurance plans have generated returns exceeding their respective long-term assumed rates of return, which are 5.25% for the Kentucky Employees Retirement System (KERS) and the State Police Retirement System (SPRS) and 6.25% for the County Employees Retirement System (CERS) and all insurance funds.
The KERS Non-Hazardous pension plan, which has the lowest funded ratio of the various KRS plans, has exceeded its assumed rate of return over recent 5- and 10-year periods. Its 2.36% return for the fiscal year was tops among all plans KRS manages.
During FY 2020, the KRS portfolio benefitted from its Real Estate allocation, which returned 9.8% and its US Equity allocation, which returned 4.7%. Detractors were Real Return, Alternatives and Non-US Equity.
The full June 2020 investment report can be found here. The most recent Wilshire consultant reports for the pension and insurance funds can be found in the Investments Library on the Investments page.
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Kentucky Retirement Systems is responsible for the investment of funds and administration of pension and health insurance benefits for over 386,000 active and retired state and local government employees, state police officers, and nonteaching staff of local school boards and regional universities.
Visit our website at https://kyret.ky.gov