The New Hampshire Retirement System announced Friday that the pension fund posted a 0.9% gain for Fiscal Year 2012.

Preliminary estimates had projected a 0.7% gain, but upon the final calculation for the fund’s real estate and alternative assets, the rate of return was revised upward.

In the quarterly investment highlights, the system also published the performance of each of the asset classes’ benchmarks. In benchmarks are used as a standard to see how well the fund has performed. Sometimes they are broad; such using an entire index, or they can be more specialized. In the case of the NHRS, the benchmarks are a mix of both, using indices as well as taking into account historical investment strategy decisions.

Below is a chart showing how well the NHRS matched the benchmarks for each asset class.[i]

 

Given the market volatility over the past year, the fact that the NHRS has lagged behind its benchmarks is no surprise. Generally speaking, volatility favors passive management over active management.

Market volatility however, is not the cause of the spread between the realized return and the benchmark for alternative assets. By definition, these types of holdings do not trade on the open market and are made up of stakes in privately held companies, non-publicly traded debt and distressed assets. These types of holdings are on the higher end of the risk spectrum, meaning big losses when things go poorly, or big gains should they do well.

The level of risk in Alternative Assets has split the public pension fund community, with some embracing it and others shunning it entirely. The NHRS currently has roughly 2.5% of assets in this type of holding, with plans to expand up to 10%.


[i] http://www.nhrs.org/Investments/QuarterReports.aspx

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