LACERS BOARD UPDATE
By Michael R. Wilkinson, LACERS Commissioner
LACERS recently received a quarterly investment performance report from its consultant NEPC, showing strong performance across all time periods.
We all know that LACERS is a long-term investor, and our retirement plan’s investment program is designed to weather the ups and downs of the markets, while never taking our eyes off our long-term goals. The quarterly investment report for the period ending Sept. 30, 2021 showed a one-year rate of return of 11.8 percent; three years at 11 percent, five years at 10.7 percent; 10 years at 10.5 percent; and 20 years at 8.1 percent on an annualized basis, after investment management fees had been paid.
In the past year, LACERS’ highest performing asset class was Private Equity, earning 56.8 percent for the year. We should not expect this kind of return every year. Private Equity returns for other time periods were three years at 21.7 percent; five years at 19.3 percent; 10 years at 14.8 percent; and 20 years at 12.1 percent.
Note that LACERS’ total fund investment portfolio has outperformed our actuarial assumed rate (earnings projection) handily over every time-period listed above. What does that mean?
The assumed rate of return is a projection of LACERS’ investment earnings, currently estimated to be seven percent for the next 30 years. This number serves as a reference point, providing context to understand that our fund’s growth comes from a combination of contributions from active employees’ member contributions, plus contributions from the City, plus investment returns from investments. These dollars will continue to be required to pay for the current and future costs and benefits of the plan.
Importantly, LACERS recognizes that there is no single “all weather” investment that will produce high investment returns in every market environment, nor does LACERS make market timing bets by gambling on short-term market calls. While market timing seems appealing in concept, it has repeatedly been shown to underperform a disciplined long-term strategic asset allocation plan in practice.
These investment performance numbers should be viewed as a screenshot of historical investment performance, and certainly evidence that our fund has moved in the right direction. We are committed to remaining steadfast on our path toward achieving our long-term goal of keeping our plan strong, enabling payment of our pension and health benefits long into the future.