Tuesday, February 26, 2013

North Carolina Retirement System 2012 Investment Returns

Last week, the North Carolina Retirement System (NCRS) announced investment returns as of December 31, 2012 for its $78 billion pension fund.  What the press release did NOT include was information about average pension fund returns.  The table below shows just how terribly the North Carolina Retirement System pension fund is managed.

                                            1-Year     10-Year
North Carolina Pension    11.84%     7.16%
Average Large Pension   13.45%     8.13%
Under-performance            -1.61%    -0.97%

The "Average Large Pension" fund was reported by Wilshire Associates for all Master Trusts larger than $5 Billion in total assets.  At first glance, one might not think that a one-year lag of -1.61% is that big a difference.  However, since the North Carolina pension fund holds $78 billion of investments, the -1.61% under-performance for 2012 translates into a cost of $1.25 billion that will have to be made up by North Carolina tax payers.  

For the 10-year period, the under-performance of -0.97% per year amounts to a cost of approximately $6.8 billion.  In other words, the North Carolina pension fund could be $6.8 billion larger, or nearly $85 billion if North Carolina's investment performance were merely average.

Just imagine all the things the state of North Carolina could do with an extra $6.8 billion right now.  Imagine what we will have to do without over the next 10 years if we continue to under-perform.  




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