Bruce Malott
One of the major goals of the New Mexico Educational Retirement Board has been to improve the investment performance of our fund. Since becoming a board member in 1998 after being appointed by Governor Johnson, and beginning my service as chair of the board in August 2004, this has been of particular concern to me.
I am pleased to report that our efforts are bearing fruit, as reflected in our performance numbers for the period that ended March 31.
Over the last 12 months, the fund has returned 40.4 percent, growing by approximately $2.5 billion. The fund balance now stands at $8.6 billion. Not only are these results impressive on an absolute basis, they rank the fund in the top 9 percent of our peer funds nationwide.
For the year ending March 31, significant contributors to performance were:
• Allocations to domestic equities (26.6 percent of the total fund), which returned 49.9 percent.
• Emerging market equities (12 percent of the total fund), which returned 85.8 percent.
• Credit opportunity strategies (6.6 percent of the total fund), which returned 52.1 percent.
• Core fixed income (25.7 percent of the total fund), which returned 22.3 percent, and real estate investment trusts (REITS) (3.8 percent of the total fund), which returned 113.5 percent.
These allocations all contributed to the strong annual results, while also strongly positioning the fund for the future.
A big improvement
Five years ago, the fund’s 5-year investment history ranked in the bottom 25 percent of all large funds nationwide. It was obvious that fundamental changes to the fund were necessary. At the board’s urging, the governor appointed a task force in 2005 to make recommendations to the Legislature to ensure the long-term solvency of the fund.
I chaired that task force. The Legislature adopted several of the task force’s recommendations that greatly broadened the fund’s investment options and increased the required contributions by teachers and schools.
Increased contributions were essential to put the fund on a firm footing. Broader investment options provide the fund more stability and allow it to better respond to changing market conditions.
As chair, I passionately believed increased professionalism of the staff, accompanied by investment diversification, would make a substantial improvement in fund performance. This has been validated by the fact that the fund is now in the top 11 percent of our peer funds nationwide for the past 5 years.
While a number of factors contributed to improving the fund’s absolute and relative returns over the last five years, much of the credit must go to the impact of the board-approved diversification strategy that reduced reliance on volatile equity market returns as the primary driver of fund results.
This investment strategy was aided by our new chief investment officer, Bob Jacksha, a new outside investment consultant, NEPC, and a bit later by an excellent new executive director, Jan Goodwin.
Despite turmoil in global investment markets, the combination of increased professionalism of the ERB staff as well as the hard work of the board has been a resounding success. Our collective vision of investment diversification has served us well. We look to build upon this success as we go forward.
Malott, CPA, CFP, CVA, CFF, is chairman New Mexico Educational Retirement Board.