Negative Investment Return in a Volatile Market Environment
With a -3.5% return, net of fees, for the 12-month period ending June 30, 2022, SCERS experienced a rare loss since the global financial crisis of 2009, and puts SCERS’ assets at $11.8 billion.
A combination of rising inflation, interest rate hikes, geopolitical instability, and declining investor sentiment led to a rapid increase in market volatility and meaningful losses across public markets.
SCERS’ public market investments suffered the greatest losses, with global equity returning -18.5% and fixed income returning -10.2%. Public market investments make up 60% of SCERS’ total fund. There were several bright spots in the portfolio that mitigated the losses, including SCERS’ uncorrelated absolute return portfolio, which returned +2.0%. Private market investments generated meaningful positive returns, including real assets at +27.6%, real estate at +27.6%, private equity at +21.7%, and private credit at +7.6%.
“It was a challenging year for the portfolio,” said SCERS Chief Investment Officer Steve Davis. “Equity and fixed income markets, which typically experience unrelated returns in troubled markets, were both down meaningfully due to the inflationary and rising interest environment. While the overall results are disappointing, the SCERS portfolio is purposely designed with a long-term focus and meaningful diversification to protect the plan in down markets.”
Despite the negative return, SCERS funding remains strong to meet our benefit obligations. The prior fiscal year, 2020-21, brought a record 27.8% return to the pension fund, which helped absorb the recent loss. Total fund annualized returns for the 5-year period ending June 30, 2022 stood at 8.4%, the 10-year period at 8.4%, the 20-year period at 7.2%, and the 30-year period at 7.9%.