The dramatic turnaround in the past fiscal year, which ended on June 30, reflected the large gains in private equity stocks – which are part of a highly diversified investment portfolio that some critics have criticized for ‘leaving potential gains on the table – and public stocks that typically fuel the stock market. VRS achieved returns of 54% on its private equity investments and 41% on public stocks, compared to almost 39% for the S&P 500 index.
VRS created the “Investment Professionals Compensation Plan” to attract and retain employees in the system’s internal investment division, which manages approximately one-third of its assets. The plan bases incentive compensation on the performance of VRS investments against third-party benchmarks over three and five years.
Over the past fiscal year, VRS’s investments have returned 2.2% more than the system might have predicted under its asset allocation policy, which aims to diversify where it invests its money. .
“VRS’s approach, in line with industry best practices, is to manage a broader set of opportunities, beyond US stocks and bonds,” spokeswoman Jeanne Chenault said on Tuesday.
Last year’s gains are expected to reduce the cost of paying future pension liabilities in the next two-year state budget, which will reflect the contribution rates that the VRS board of directors recommends next month to state and local government employers payable from July 1, 2022 to June 30, 2024.