Quarterly Updates

Second Quarter

August 15, 2023

Markets and PRIT Fund Performance

 Fiscal Year 2023 was a very successful and productive year in an abnormally volatile and complex investment environment. The PRIT Fund ended with a record balance of $96.6 billion for the fiscal year ended June 30, 2023, surpassing the previous record of $95.7 billion set in fiscal year 2021. Net outflows to pay pension benefits during the year were $986 million. The PRIT Fund returned 6.0% (5.6%, net) for the fiscal year and posted strong positive gains in each of the last three quarters. In Fiscal Year 2023, U.S stocks were up 19.7%, developed international stocks were up 17.5%, and emerging markets stocks were up 9.1%, while diversified bonds were down less than 1%. The highest returning PRIT Fund asset classes included Global Equities, up 17.4%, Value-Added Fixed Income, up 7.7%, and Timberland, up 5.9%. Core Fixed Income was weaker, down 2.7%, while Real Estate and Private Equity, which are lagged one quarter, were down 2.8% and 3.5%, respectively. The investment team researched and deployed $5.4 billion in Board-approved investments in Fiscal Year 2023.

The solid gain in Fiscal Year 2023 followed the tumultuous Fiscal Year 2022 in which U.S. equities were down 10.6%, developed international equities were down 17.7%, emerging markets equities were down 25.2%, and diversified bonds were down 10.3%. The Fiscal Year 2022 PRIT Fund return of -3.0% (-3.4%, net) was a strong result in a very weak market. While PRIM cannot control market returns or the factors that have fueled the recent volatility in the markets, PRIM staff carefully control the construction of the PRIT Fund to perform well in both strong and weak markets. The last three fiscal years have provided an extraordinary test, and we remain pleased and confident in the resiliency of the PRIT Fund and its performance over all time periods and throughout several different market environments. The PRIT Fund’s trailing 3-, 5-, and 10-year returns remain strong and consistently above benchmarks and the required actuarial rate of return.

PRIT Fund Performance

The PRIT Fund gained 6.0% (5.6%, net) for the fiscal year ended June 30, 2023, underperforming the benchmark by 3.3%, net of fees.

Organizational Updates and Recent Recognition

PRIM is comprised of 68 highly trained, experienced, and dedicated employees after hiring eight new full-time employees and nine seasonal interns in Fiscal Year 2023. Six of the eight new employees are diverse in terms race and/or gender and all interns are diverse. 62% of PRIM’s workforce is diverse and 52% of our workforce identifies as female.

The work of PRIM staff continues to receive local and national recognition. In Fiscal Year 2023, PRIM’s Private Equity portfolio ranked third out of 176 U.S. public pension plans based on 10-year performance. PRIM ranked eighth in the U.S. for assets managed by diverse managers according to Pensions & Investments. PRIM received the Commonwealth’s “Equity in Governance Award” for the FUTURE Initiative, Institutional Investor’s “Partnership of the Year” award for our role in the Aggregate Confusion Project, and the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association for the seventeenth consecutive year. PRIM also successfully completed the CFA Institute’s Global Investment Performance Standards of Integrity and Transparency, a standard with which only small handful of other pension funds comply. PRIM completed 36 separate audits, including unexpected audits from PERAC and the Office of the State Auditor. All audits resulted in unmodified (clean) opinions with no findings.

More recently, PE-WIN, the Private Equity Women Investor Network, the preeminent organization for senior-level women investment professionals in private equity, recognized PRIM as “Limited Partner of the Year” for “empowering women in private equity.” The award reflected both PRIM’s work on investing with women and diverse managers via the FUTURE Initiative and the strong leadership presence of women on our own Private Equity team. PRIM’s Private Equity team also won Alpha Edge recognition for Alpha Generation from “Institutional Investor.” Institutional Investor cited PRIM’s strong leadership culture, collaboration, and thesis-driven approach to manager selection as well as our annual commitment modeling process and our strong long-term performance in the asset class. PRIM also recently received our eighteenth Certificate of Achievement for Excellence in Financial Reporting.

The FUTURE Initiative, the program to increase the diversity of PRIM’s investment managers and vendors to at least 20% by increasing access for minorities, female, and disabled investment managers and business partners, had a successful year in Fiscal Year 2023, investing approximately $2.2 billion with diverse managers over five asset classes. The PRIT Fund currently invests more than $9.9 billion with diverse investment managers, more than 10% of the PRIT Fund. With a ranking of eighth among the largest 200 funds in the U.S. for our allocation to diverse managers, PRIM is above its ranking in total assets under management. Additionally, PRIM doubled its total deployment to emerging, diverse managers to more than $470 million.

On Environmental, Social and Governance (ESG) issues, PRIM developed and approved the ESG Committee Charter, members were appointed, and the Committee held its inaugural meeting. PRIM recruited and hired its first-ever Director of Stewardship to support the Committee and its work in the space. PRIM voted 8,979 proxy ballots aligned with its progressive proxy voting guidelines on areas such as board diversity requirements, over-boarded directors, gender pay gaps, labor and human rights, climate change, and executive compensation. PRIM adopted new proxy voting guidelines to vote for shareholder resolutions that require companies to provide access to the full range of reproductive healthcare and comprehensive parental leave and to vote for shareholder resolutions that request companies to provide greater disclosure of corporate campaign financing. PRIM continues to support the MIT Sloan School of Management’s Aggregate Confusion Project (ACP) as its first founding member. The goal of ACP is to develop tools to address inconsistencies in the measurement of ESG data, which has become widely recognized as an obstacle in ESG investing.

The focus and efforts of the PRIM team were nothing short of remarkable under the unique circumstances of the year. The team is hard working and dedicated, delivering not only strong investment performance, but also extraordinary non-investment innovation and responsiveness.