First Quarter Update
May 18, 2023
Markets and PRIT Fund Performance
We are pleased to report a positive return for the March 2023 quarter, the second consecutive quarter of PRIT Fund gains following the three quarter sell-off during calendar year 2022. The PRIT Fund was up 3.6% in the quarter ended March, and that followed a positive 4.1% return in the December 2022 quarter.
We expect market drops and economic cycles to impact the PRIT Fund periodically. Last year, in calendar 2022, stocks were down 15-20% globally while bonds were down approximately 13%. Normally, we would have expected bonds to offer some protection from a selloff in equities, but last year with rising interest rates, bonds and stocks were both down substantially. The PRIT Fund fared better than both stock and bond indices in 2022, it was down 11.2% net of fees. We cannot control market returns because we don’t control the factors which fueled last year’s difficulties: geopolitical events, slowing economic growth worldwide, monetary policy response, wars, viruses, supply chain shortages, or the behavior of other investors. The only thing we can control is the design and composition of the PRIT Fund, and we have carefully engineered a diversified portfolio with components that will perform well in a variety of market environments. We are also focused on controlling our costs. Our history of strong performance in both strong and weak markets is an indication that our portfolio is well constructed in terms of risk, return, and cost – PRIM’s philosophical three pillars of investment. We believe that no investment decision is complete without evaluating these three equally important parameters.
Our alternative investments have helped anchor the Fund in the very stormy environment and thankfully now the markets have provided two consecutive quarters of gains. Additionally, market downturns create good buying opportunities, and the PRIM team has been very busy evaluating opportunities and deploying nearly $6 billion in new investments across all asset classes.
Last August, we observed a peak in bond yields and signs that inflation had begun to moderate, and more recently those trends have been reconfirmed. GDP growth declined, but remained positive, corporate revenue growth and earnings reports were positive and well above expectations. Inflation, as measured by the Consumer Price Index, slowed for a nineth consecutive period in March to 5%, the lowest since May of 2021, and down from 6% in February, and the Unemployment Rate fell again to 3.5%, which was better than expected. The consensus of investors and economists is still for a mild recession, no change from last quarter.
The March quarter was somewhat chaotic, it wasn’t a straight line upwards, and volatility remains elevated. In mid-March, Silicon Valley Bank (SVB) and Signature Bank failed. U.S. authorities took extraordinary steps to prevent a contagion from developing as Treasury Secretary Yellen instructed the FDIC to make whole all depositors regardless of size; all depositors had access to their funds immediately.
PRIM’s exposure to SVB, an S&P 500 component, was very low and immaterial, but we are mindful that SVB played an important role in the financial plumbing of the Private Equity and Venture Capital ecosystem. We are closely monitoring several ongoing concerns including the possibility that other banks will develop similar problems. Wall Street analysts say wide-spread contagion is unlikely, but smaller regional banks that are disproportionately tied to cash-strapped industries like tech and crypto or have loans to underperforming commercial real estate, may be in for more volatility. First Republic Bank failed during the last week of April, the bank seized and sold to JP Morgan. PRIM’s net exposure to First Republic and Signature Bank was also very low and immaterial. Markets have repriced in the wake of these failures: In the equity markets regional banks and REITs were very weak while technology, large cap, and growth stocks were very strong; interest rates have fallen.
More broadly, the main risks going forward are familiar. The risks are that inflation spikes again or remains too high – after all, there are geopolitical situations that could disrupt the supply chain again – consumer and business spending along with corporate earnings could weaken more than anticipated, and unemployment or wages could spike. Any of these conditions could result in an economic slowdown that turns into a severe recession. There are many moving pieces in the global economy and in the world’s geopolitical situation, but we believe the PRIT Fund is well-diversified and carefully engineered, with components that will perform well in any future environment.
PRIT Fund Performance
For the one-year ended March 31, 2023, the PRIT Fund was down -5.5%, (-5.9% net), underperforming the total core benchmark of -1.4% by 412 basis points (451 bps net).
Organizational Updates
PRIM Board
Governor Healy recently appointed Catherine D’Amato to the PRIM Board. Catherine is a deeply experienced Chief Executive Officer. As President and CEO of the Greater Boston Food Bank, New England’s largest hunger relief organization, and Founder of the Hunger to Health Collaboratory, Catherine leads a team of 150 employees and thousands of volunteers. Her work provides food to six hundred distribution organizations, who in turn provide 100 million meals annually to those in need. Catherine has considerable board governance experience serving in a variety of roles as an elected officer, board chair, vice-chair, committee chair, and general director. Her current or completed board roles include Fidelity Charitable, Eastern Bancshares, Forsyth Institute, Federal Reserve Bank of Boston, The Boston Foundation, the Human Rights Campaign, and others. Catherine is a well-known, highly respected public figure, a sought-after public speaker, and has received many local, state, and national leadership awards and honorary degrees. She received her bachelor’s degree from the University of San Francisco and completed both a Strategies in Non-Profit Management Certificate from Harvard University and a Certificate of Management from Smith College. We welcome Catherine to the PRIM Board and look forward to her contributions.
Robert Brousseau and Paul Shanley, Esq. were both recently re-elected to a new three-year term on the PRIM Board, representing the Massachusetts Teachers’ Retirement System and the State Employees’ Retirement System, respectively. We congratulate them on their victories and thank them for their many years of dedicated service.
Karen Gershman has resigned her seat on the Administration and Audit Committee. Karen served on the Administration and Audit Committee for more than ten years and prior to that served as PRIM’s COO and CFO for approximately 10 years (2001 – 2011). Karen possessed a unique combination of institutional knowledge and industry experience that will be greatly missed. We thank Karen for her many contributions to PRIM over the more than 20 years of service and wish her the best in her retirement.
New Hires
Veena Ramani joined PRIM in late April as Director of Stewardship, which is a new position within the organization. Veena will head PRIM’s ESG and Stewardship efforts and support the newly formed ESG Committee. She joins PRIM from FCLTGlobal, a nonprofit whose mission is to focus on the long term to support a sustainable and prosperous economy. As Director of Research at FCLTGlobal, Veena oversaw the Research Team, working with members who include asset owners, asset managers, and corporations to develop actionable research to drive long-term value creation for investors. Prior to FCLTGlobal, Veena spent 15 years at Ceres, a leading sustainability nonprofit, holding several different roles including running campaigns to engage financial regulators on the systemic risk of climate change, developing an online training curriculum for corporate board members on ESG in partnership with the Berkeley School of Law, and engaging with large corporations on their sustainability and climate change strategies and disclosures. She holds a BA with honors degree from the National Law School of India University and a Master of Law degree from Washington University School of Law.
John Fitzpatrick joined the team in March as a Legal and Governance Analyst. John comes to PRIM from Laredo & Smith, a Boston law firm, where he was an Associate Attorney. John has his Bachelor of Arts degree in Philosophy and Economics from Saint Joseph’s University in Philadelphia and his Juris Doctor from Boston College Law School.
Ethan Spencer joined PRIM in February as a Senior Investment Officer in Portfolio Completion Strategies. Ethan was Managing Partner at Eastern Point Capital, a global emerging and frontier market investment platform. Prior to that, Ethan had extensive experience working at the Boston University Endowment, Cambridge Associates, and Credit Suisse First Boston. He holds a BA degree from Colby College and an MBA degree from the Johnson School at Cornell University.
Riya Shah joined the team in February as an Investment Compliance Analyst. This is another new position at PRIM. Riya will assist with investment manager guideline monitoring, regulatory and state filings, and operational due diligence. Riya comes to us from State Street where she served as Enterprise Technology Risk Analyst within the bank’s compliance team. Riya has her Bachelor of Arts degree in Actuarial Science and Economics from Assumption College.
Andrew Browne joined PRIM in February as an Investment Analyst, on the Private Equity team. Andrew graduated in December from Northeastern University’s D’Amore-McKim School with a Bachelor of Science in Business. During his time at Northeastern, Andrew completed a variety of investment management internships in venture capital, investment advisory, and private wealth investment management. He also co-founded a school-wide research and consulting group to empower NGOs.
We are very pleased to have recruited this diverse group of outstanding individuals and we look forward to their contributions. Each of them is off to an outstanding start.
