Joshua Elliott-Traficante

September 2012

The New Hampshire Retirement System’s 0.7% investment return for fiscal year 2012 was jumped on by some as a sign the system had failed because it had not met the assumed rate of return of 7.75%. As pointed out in an earlier piece[1], for FY12, the System’s returns were about par for the course in comparison to other state pension systems.

Taking a wider historical view, this is true both in comparison to the stock market as a whole and in comparison to other pension systems.

 

The NHRS and the S&P 500: A Historical Look[2]

Below is a comparison of the rates of return, by fiscal year, for the NHRS and the S&P 500. It is not a perfect fit for the NHRS, since the System’s assets also include fixed income, foreign stocks and real estate, among other financial instruments. However, domestic equities make up roughly 40% of the portfolio.

 

 

Generally speaking, investment returns follow market trends. Investment return data shows that the NHRS tends to outperform the S&P, particularly in the bad years. From 1990 to present, the S&P has averaged a return of 7.69%, where the NHRS has seen 9.29%. Put another way, the NHRS outperformed the S&P 500 in 13 of the last 22 years. Of the years that the NHRS underperformed, half were by less than 3 percentage points.

 

The NHRS Returns and other Public Sector Pension Systems:[3]

Another check on performance is to compare the NHRS to similar public sector pension systems. Below is a chart comparing the returns of the NHRS, to the returns of state and large local public sector pension systems across the United States.

In the chart, above, the horizontal bar indicates the returns of the New Hampshire Retirement System for the year. As the data shows, System returns have been in the middle of the pack. Returns have stayed well within the range of similar systems, usually near the average.

The vertical lines represent the range of investment returns from the sample systems. Surprisingly enough, returns vary greatly with more than 10 percentage points often separating the highest and lowest returns. This spread can be attributed to a number of factors, in particular asset allocation and the performance of private equities.


[1]See: http://www.jbartlett.org/did-state-pension-invesments-really-do-all-that-badly-in-2012

[2]Investment Return Data for the NHRS is taken from each year’s Comprehensive Annual Financial Report. Fiscal Year 1999 to date CAFRs are available online at http://www.nhrs.org/Investments/Reports.aspx. Fiscal Year 1990 to 1998 are available at the New Hampshire State Library. S&P Returns are available online.

[3]NHRS Returns, see Footnote 1, National Pension Data Public Plans Database. 2001-2009. Center for Retirement Research at Boston College and Center for State and Local Government Excellence. FY10 and 11 data was unavailable so those years use a randomly selected set of 10 consisting of ME, NM, KY, ID, AK, RI, NJ, MD, CALPERS, and AZ, with the data compiled by the author.
2 replies
  1. mike
    mike says:

    how has the system done in relation to its assumed/required rate of return? relative performance is good at justifying consulting fees but its useless at assessing success at achieving the mandate

    Reply

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