May 15, 2024

by Michael R. Wickline | Arkansas Democrat-Gazette

The Arkansas Public Employees Retirement System’s investments gained about $477 million in value during the last quarter to $11.43 billion, an investment consultant reported to the system’s board of trustees on Wednesday.

The system’s investment return in the quarter that ended March 31 was 4.85%, lagging the median return of 5.19% of other public retirement systems across the nation, the investment consultant Callan LLC said.

During the past 20 years, the system’s investment return has averaged 7.34% a year, compared to the median return of 7.09% a year of other public retirement systems across the nation during the same period, according to the investment consultant. The system’s target investment return is 7.15% a year.

The system’s investments are valued at about $11.32 billion after a downturn in investment markets in April and then improved investment markets in May, said Carlos Borromeo, the system’s deputy director of investments and finance.

In other action, the trustees voted Wednesday to accept a report from its Investments and Finance Subcommittee that the subcommittee narrowed the system’s options for new system offices to a proposed building just north of the state Capitol and the purchase of the Cadence Bank building in the Riverdale area.

A company owned by veteran lobbyists Ted and Julie Mullenix has proposed to construct a building on its property at 1700 W. Third St., north of the state Capitol. The Cadence Bank building is at 2800 Cantrell Road.

The system’s offices are currently located in leased space in the Union Plaza building in downtown Little Rock.

The Arkansas Public Employees Retirement System is state government’s second-largest retirement system with more than 75,000 working and retired members.

The Arkansas Teacher Retirement System is the largest state government retirement system with more than $21 billion in investments and more than 100,000 working and retired members. The teacher retirement system owns its offices at 1400 W. Third St.

According to Callan LLC, the system’s domestic stock market investments were valued at $4.58 billion at the end of last quarter and recorded an investment return of 9.1%, while the system’s international stock market investments were valued at $2.81 billion at the end of last quarter and posted an investment return 4.7%.

The system’s bond investments were valued at $1.97 billion at the end of last quarter and recorded an investment return of 0.3%, Callan LLC reported.

Callan reported the system’s real asset investments were valued at $1.51 billion at the end of last quarter and posted an investment return of minus 1.78%. The system’s real asset investments include real estate, real estate investment trusts, farmland and timber.

The system’s private market investments, including hedge fund and private equity investments, were valued at $359.5 million at the end of last quarter and recorded an investment return of 11.51%, according to Callan.

In other investment related-action, the board voted to request that Borromeo start a search to replace domestic stock investment manager Lizard Asset Management after the departure of its portfolio manager. As of March 31, Lazard Asset Management managed $534.4 million in the domestic stock market for the system.

As of June 30, the system had 43,352 working members with an average salary of $48,724 a year, according to the system’s actuary Gabriel, Roeder, Smith & Co. The system had 42,276 retired members, including deferred retirement plan participants, with total annual benefits of $703.5 million, or an average of about $16,640 a year, as of June 30, the actuary reported.

There are 1,473 deferred retirement plan members with a total payroll of $103 million, or an average of $69,925 a year, according to the firm.

Gabriel, Roeder, Smith & Co. said the system’s unfunded liabilities total $2.43 billion, based on the system’s actuarial accrued liabilities totaling $13.07 billion and the funding value of the system’s assets totaling $10.64 billion as of June 30. The system’s unfunded liabilities are the amount by which the system’s liabilities outdistance its assets.

The projected payoff period for most of the system’s unfunded liabilities is 17 years, and the projected payoff period for the rest of the unfunded liabilities is 20 years, the actuary reported. Actuaries often compare the projected payoff period for a retirement system’s unfunded liabilities to a mortgage on a house.

SYSTEM OFFICE SEARCH

On April 25, the trustees’ Investments and Finance Subcommittee reported that it voted to ask system Executive Director Amy Fecher to work with state Division of Building Authority Director Anne Laidlaw to do a comparison and analysis of the capital outlay costs for the Cadence Building and the proposed new building and report back to the subcommittee within 30 days.

The panel also asked the system’s staff to work to align with the vision of the coming report of Arkansas Forward, Gov. Sarah Huckabee Sanders’ state government efficiency initiative.

The trustees’ Investments and Finance Committee report on its April 25 meeting states that TJM Management provided an overview of the new building site at Third and Bishop.

The location is at the north end of the Arkansas State Capitol and is considered as being within the Little Rock downtown area, according to the subcommittee’s report.

The new building would be highly visible, convenient, and accessible to other branches of state government, the subcommittee’s report states. A new building would allow APERS the opportunity to own the building, once built, which would eliminate any rising leasing costs.

The 75,000-square-foot Cadence Bank building’s pricetag would be $15.6 million plus the cost of repairs, Fecher told the subcommittee during its April 25 meeting. At that time, Julie Mullenix told the subcommittee that the pricetag for the original plan for a 40,000-square-foot building would be $18.5 million.

Larry Walther, chairman of the system’s board of trustees and the state treasurer, told the trustees on Wednesday that one way to look at these options would be as a system investment in real estate.

After the trustees meeting on Wednesday, Fecher said she expects to complete the report comparing the capital outlay costs of the Cadence Building and the proposed new building north of the state Capitol that the Investment and Finance Subcommittee requested on April 25 within 30 days.

“We still have a little information coming in,” she said.

Walther said, “We are looking forward to making changes, but we want to do the right thing, the most economical for the state and as well as APERS.

“We’ll just see what the recommendation is,” he said.

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