STRS Ohio Total Fund Returns +9.57% for Fiscal Year 2018; Active Management Adds $350 Million in Value
STRS Ohio’s total fund return for the year ending June 30, 2018, was +9.57%. This follows returns of +14.29% in fiscal year 2017 and +0.92% in fiscal year 2016. The value of investment assets as of June 30, 2018, was $77.7 billion, an increase of about $2.6 billion from the June 30, 2017, level of $75.1 billion.
The return beat the total fund benchmark by +0.63%. The system’s active management of the funds, rather than relying on index funds, added approximately $350 million in value after all investment costs during the fiscal year. STRS Ohio’s fiscal 2018 return ranked in the top 20% of Callan’s public fund sponsor database. Callan serves as an investment consultant to the Retirement Board. The positive performance was led by a +16.21% return on domestic equities and a +13.59% return on alternative investments.
While the fiscal 2018 return topped the fund’s actuarial assumed rate of return, STRS Ohio’s investment consultant continues to call for lower than normal returns over the next decade. STRS Ohio manages about 70% of its assets through its in-house investment department. A report by CEM Benchmarking, a leading global research company, shows that STRS Ohio’s internal investment strategy is a key reason the retirement system has the third lowest investment costs in its peer group of 17 large U.S. public fund sponsors. The report showed STRS Ohio saved about $101 million in calendar year 2016 by using this internal management approach. A portion of compensation for STRS Ohio’s investment staff is earned through performance-based incentive (PBI) payments. Based on the investment performance for fiscal year 2018, as well as the trailing five-year period, the Retirement Board approved PBI payments totaling approximately $8.89 million at its September 2018 meeting.
|STRS Ohio’s Returns Over Various Time Periods|
|5-year total fund return||9.26%|
|10-year total fund return||7.04%|
|20-year total fund return||6.78%|
|30-year total fund return||8.57%|
|Current assumed actuarial rate of return||7.45%|
Fiscal 2019 Budget Reflects 2.2% Increase; Fiscal 2018 Operating Expenses Finish Under Budget
STRS Ohio’s adopted operating budget for fiscal year 2019 totals about $101.7 million, an increase of 2.2% over the fiscal 2018 budget. Final figures for fiscal 2018 show that STRS Ohio operating expenditures were approximately $96.5 million, about $637,000 less than the budgeted amount. The Retirement Board and staff continue to pay close attention to system expenses. The fiscal 2019 budget calls for a fifth straight year of declines in the total number of associates. STRS Ohio budgeted for 538 full-time equivalent associates, down from a high of 735 associates in 2001. Other cost efficiency measures include lower spending on printing costs as more members opt for STRS Ohio’s online services.