SCERS Beats Investment Hurdle

SCERS' investment portfolio returned an impressive 9.2% net of fees for the 12-month period ended June 30, 2024, beating SCERS' investment return assumption of 6.75%.

The Growth asset category was SCERS' best-performing segment, led by Global Equities, which were up 18% for the year. "Market returns were driven by resilient economic growth, moderating inflation, and expected interest rate cuts by the Federal Reserve," said SCERS' Chief Investment Officer Steve Davis. Private Equity, Public Credit, and Private Credit also generated strong returns of 7%, 9.2%, and 10.2%, respectively.

The Diversifying asset category, designed to protect the fund during market cycles, delivered moderate performance of 4% during the fiscal year, led by SCERS' Absolute Return or hedge fund portfolio, which was up 6.9%, and Cash, which was up 5.4% in the higher interest rate environment. Fixed Income lagged with a 2.5% return, impacted by volatile interest rates.

"The Real Return asset category generated a disappointing -1.4% return during the fiscal year, led on the downside by Real Estate, which returned -9.8%. Real Estate was affected by the impact of high interest rates on valuations, particularly within the challenged office property sector," Davis said. Real Assets, which include infrastructure, delivered a strong 6.2% return during the year.

Davis is pleased with the outperformance but remains cautious. "Markets have been volatile to start the new year over fears of slowing economic data, high market valuations, the impact of high interest rates on the economy, and geopolitical risks," he said.

SCERS' longer-term returns remain strong, as evidenced by the 5-year and 10-year returns of 8.0% and 7.1% respectively. Both returns rank near the top quartile among public pension plan peers, at 26th and 24th respectively.