Key Takeaways
- • The Arkansas Teacher Retirement System's investments gained $1 billion in value to $20.7 billion in the fiscal year ended June 30, 2023, a 9.2% return that ranked in the top 15% of U.S. public pension systems above $1 billion, according to consultant Aon Hewitt.
- • The system's 10-year average annual return of 8.8% ranks in the top 3% of public pensions, comfortably above its 7.25% target.
- • Trustees authorized up to $125 million in new investments, including up to $50 million in EnCap Energy Transition Fund II and up to $30 million in Post Road Special Opportunity Fund III, plus up to $40 million in a promissory note to Highland LP.
- • Trustees amended the investment policy to conform with Arkansas Act 411, requiring divestment from listed financial services providers that discriminate against energy, fossil fuel, firearms or ammunition companies, within 365 days of listing.
- • Real estate was the only major asset class to decline in fiscal 2023, returning minus 3.5%, while stock investments returned 15.7%.
Summary
The Arkansas Teacher Retirement System's investments grew by $1 billion to $20.7 billion in the fiscal year that ended June 30, 2023, according to an investment consultant who presented to the system's board of trustees on Monday, September 25. Aon Hewitt Investment Consulting's P.J. Kelly said the 9.2% return ranked among the top 15% of the nation's public pension systems with more than $1 billion in assets. The system's average annual return over the past 10 years was 8.8%, ranking among the top 3% of U.S. public pensions, against a target return of 7.25% a year. Deputy director Rod Graves said the portfolio was valued at about $20.3 billion as of the preceding Friday.
By asset class, public equities returned 15.7% in fiscal 2023 to reach $11.22 billion on June 30. Private equity returned 2.1% and ended the year at $2.90 billion, while bonds returned 1.4% to reach $2.87 billion. Real estate was the weakest segment, returning minus 3.5% and ending at $1.52 billion. Opportunistic and alternative investments returned 7.9% to reach $1.03 billion, infrastructure returned 12.6% to $456.7 million, timber returned 7.1% to $345.2 million, and agriculture returned 10.1% to $236.3 million, according to Aon Hewitt.
Trustees authorized up to $125 million in new commitments. These include up to $50 million in EnCap Investments' EnCap Energy Transition Fund II, described in system records as a value-add/opportunistic fund focused on transitional energy assets that can be sold to core infrastructure buyers; up to $30 million in Post Road Special Opportunity Fund III, which is being formed to provide capital to small and lower middle market businesses in telecommunications, digital infrastructure, technology, media and tech-enabled business services, according to private equity consultant Franklin Park; and up to $5.1 million in recallable distributions to buy about 800 acres in Lonoke County for a row crop rice and soybean farm. Trustees also approved up to $40 million in a two-year promissory note to Highland LP, a vehicle through which the system has invested in Highland Pellets, a wood pellet producer. Chief Investment Officer memo author Leslie Lane II said the loan would support a planned $75 million financing, and would raise the system's total investment in Highland to $260 million. Executive Director Mark White described the company as having faced a rocky road but said the loan offered a realistic opportunity to increase production.
The board also changed the investment policy to conform with Act 411, which became effective Aug. 1 and created an ESG Oversight Committee. Under the revised policy, the system must divest from direct holdings with listed financial services providers within 365 days of listing, except where divestment would trigger a financial penalty on locked-in investments. White said the committee must produce a list within 90 days of the governor's appointment, and that the system's custodial bank, State Street Corp., appears on Oklahoma's comparable list.
In governance matters, the board appointed Kelsey D. Bailey, chief deputy finance and operations officer for the Little Rock School District, to the position 7 trustee seat vacated by Kelly Davis. White also hired Sarah Linam, chief of administrative operations at the state Department of Human Services, as deputy director for member services at an anticipated salary of $136,886. As of June 30, 2022, the system had 68,127 working members, 3,251 deferred members and 52,748 retirees. Employers contributed $503.4 million and members contributed $188.6 million in fiscal 2023. The board also approved a 3% interest rate for deferred retirement accounts.
By asset class, public equities returned 15.7% in fiscal 2023 to reach $11.22 billion on June 30. Private equity returned 2.1% and ended the year at $2.90 billion, while bonds returned 1.4% to reach $2.87 billion. Real estate was the weakest segment, returning minus 3.5% and ending at $1.52 billion. Opportunistic and alternative investments returned 7.9% to reach $1.03 billion, infrastructure returned 12.6% to $456.7 million, timber returned 7.1% to $345.2 million, and agriculture returned 10.1% to $236.3 million, according to Aon Hewitt.
Trustees authorized up to $125 million in new commitments. These include up to $50 million in EnCap Investments' EnCap Energy Transition Fund II, described in system records as a value-add/opportunistic fund focused on transitional energy assets that can be sold to core infrastructure buyers; up to $30 million in Post Road Special Opportunity Fund III, which is being formed to provide capital to small and lower middle market businesses in telecommunications, digital infrastructure, technology, media and tech-enabled business services, according to private equity consultant Franklin Park; and up to $5.1 million in recallable distributions to buy about 800 acres in Lonoke County for a row crop rice and soybean farm. Trustees also approved up to $40 million in a two-year promissory note to Highland LP, a vehicle through which the system has invested in Highland Pellets, a wood pellet producer. Chief Investment Officer memo author Leslie Lane II said the loan would support a planned $75 million financing, and would raise the system's total investment in Highland to $260 million. Executive Director Mark White described the company as having faced a rocky road but said the loan offered a realistic opportunity to increase production.
The board also changed the investment policy to conform with Act 411, which became effective Aug. 1 and created an ESG Oversight Committee. Under the revised policy, the system must divest from direct holdings with listed financial services providers within 365 days of listing, except where divestment would trigger a financial penalty on locked-in investments. White said the committee must produce a list within 90 days of the governor's appointment, and that the system's custodial bank, State Street Corp., appears on Oklahoma's comparable list.
In governance matters, the board appointed Kelsey D. Bailey, chief deputy finance and operations officer for the Little Rock School District, to the position 7 trustee seat vacated by Kelly Davis. White also hired Sarah Linam, chief of administrative operations at the state Department of Human Services, as deputy director for member services at an anticipated salary of $136,886. As of June 30, 2022, the system had 68,127 working members, 3,251 deferred members and 52,748 retirees. Employers contributed $503.4 million and members contributed $188.6 million in fiscal 2023. The board also approved a 3% interest rate for deferred retirement accounts.
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