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VRS enjoys large return on $26 billion investment
By MAURA SINGLETON
Daily Progress staff writer
June 19, 1997
It's a daunting task, trying to decide how to invest $26 billion.
So far, though, the Virginia Retirement System's investment practices have paid off handsomely, helping the pension plan of state and local workers to increase by $10 billion over the past three years, its chief investment officer said.
"We haven't done any dumb things. We've avoided mistakes," Erwin H. Will Jr. told the state agency's Board of Trustees on Wednesday. "We're not in managed futures or oddball investments."
A favorable investment environment, combined with efforts to cut operating costs and management fees, have put VRS assets in better shape than had been forecast, Will said.
With 357,000 members, the VRS is the 30th largest pension system in the United States. It benefits state and local government employees, teachers, police, firefighters and judges.
To help manage the multi-billion-dollar pool of assets, the nine-member Board of Trustees has a professional investment staff, outside managers and two advisory committees made up of financial experts.
During its annual conference at the Boar's Head Inn, the VRS board reviewed the pension fund's stock market performance in the past year and brainstormed about ways to manage and invest the money effectively during the next.
All of the programs in the highly-diversified fund —from private and domestic equity to real estate— have been productive in the last year, Will said.
"Real estate has had the biggest turnaround, but all the areas seem to be hitting on all cylinders," he said. "The return has been quite good."
In the $1.5 billion real estate investment program, for instance, the rate of return for the year ending March 31, 1996, was 15.4 percent r the second-highest in 16 years.
'It equals huge returns For the state.
It’s one victory taxpayers and beneficiaries have."
Edwin T. Burton III, VRS board of trustees
Overall, the VRS saw a one-year total net return of 18.2 percent, which represents one of the best returns zver achieved by the VRS' investment fund, agency officials noted. During the past five years, investment returns have-averaged 11.8 percent a year.
"It equals huge returns for the state," said Edwin T. Burton III, a University of Virginia professor who also is the board's chairman. "It's one victory taxpayers and beneficiaries have."
The board, appointed in 1994 by Gov. George F. Allen and the Virginia General Assembly, overhauled investment policies and adopted a more conservative approach than the former board under then Gov. L. Douglas Wilder, Burton said.
While recent financial performance has been good, the VRS needs to continue to find ways to manage its assets more cheaply, its managers said. The fact that people are retiring earlier and living longer puts the pension fund under great pressure to perform well in the future.
"We're all expecting some rough weather in the stock market, but we don't know when or where we will encounter it," Burton said of the outlook for VRS' investments.
A 1996 study by a VRS performance consultant round that the pension fund was one of the top performers in its class, but noted that the agency pays more than other comparable organizations in trading and management fees.
VRS officials agree that they could save money by handling more investment portfolios internally and sticking with so-called."passive" assets rather than active assets, which incur large transaction fees.