Defends PRIT’s Investment Record

FEBRUARY 5, 2009: Much has been made about the investment loss of the Commonwealth’s Pension Reserves Investment Trust (PRIT) Fund in Year 2008.

Overall, the Fund lost $15.9 billion in 2008, falling from $53.7 billion to $37.8 billion, a 29.4 percent fall.

“The poor one-year performance should be compared with the Fund’s long-term success,” said Ralph White, a former 24-year trustee of the Fund. “Over the last five years, PRIT finished in the top 25% of funds across the country, growing at 5.3 percent, and over the last 10 years, it finished in the top 14 percent, with a growth of 4.66 percent. Since its inception, the Fund has gained 9.3%.

“What should be pointed out is that since its first full year in 1985, the Fund had an annualized return of 11.41%, prior to 2008, placing it among the top 10 percent in the country. It’s a moderate risk, well-diversified fund.”

But, the huge loss in ’08 precipitated an unprecedented drop in the annualized return in the Fund, which critics have been quick to point out.

“It would have been wrong to make any major changes in the Fund based on 2008 and perhaps even 2009 which could be another tough year,” said White. “For the Fund to change its strategy to a more conservative style would not be in keeping with its ability to earn double-digit returns on a consistent basis when this recession ends.”

White also pointed out that although about one-half of the Commonwealth’s retirement systems have placed their entire pension funds in PRIT and thus have shared the same loss, there are some retirement systems who did better on their own in 2008.

“While the final numbers are not yet available, I know that there are some systems whose loss was four or five percent less than PRIT last year. That’s why I’ve always been opposed to legislation that forces local systems to place their funds with PRIT. If a local fund wants to maintain a more conservative or different investment style, it should be their prerogative.

“There were a few systems that were forced by legislation to join the PRIT Fund last year, and based on that one year, they have a right to be angry. Speaking for myself, and Paul Shanley who won my seat on the PRIM Board when I stepped down, the Board (PRIT’s Trustees) has never been in favor of mandatory participation. It’s an option that has worked well for many retirement systems.”

Association Vice President Paul Shanley, who succeeded White on the PRIM Board agreed that local systems should be allowed to make their own decisions.

“I’ve been associated with local retirement boards for a long time,” said Shanley. “The local trustees are very dedicated to their systems and have some top-notch consultants. Forced entry into PRIT only breeds resentment. Having said that, I also believe that the PRIT Fund will rebound, especially if the Congressional stimulus package gets the market and the economy headed in the right direction. I also feel that PRIT’s asset allocation is the long-term right way to go, as evident by its overall success during the past 25 years.”