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September 12, 2024

CT makes 11.5% return on pension asset investments

MARK PAZNIOKAS / CTMIRROR.ORG Gov.Ned Lamont and Treasurer Erick Russell with D. Ellen Shuman, the outgoing chair of the Investment Advisory Council.
By Keith M. Phaneuf, CT Mirror

Connecticut made an 11.5% return last fiscal year investing its pension assets, placing in the top 25% nationally of large public pension funds, state Treasurer Erick Russell reported Wednesday.

Investment gains, coupled with about $1.9 billion in budget surplus that state legislators and Gov. Ned Lamont dedicated to unfunded obligations, meant Connecticut’s pension funds gained $6.7 billion last fiscal year. 

It also marks the second successive fiscal year Connecticut ran up strong returns, having made 8.5% on investments in 2022-23. 

“Strong investment performance is a critical component to Connecticut’s overall financial success,” said Treasurer Erick Russell, who released the results during Wednesday morning’s meeting of the state Investment Advisory Council.  “Generating returns above our assumed rates of return, like we have the past two years, guards against the impact of future down markets and accelerates the speed at which we can pay down legacy pension debt inherited by the current generation of Connecticut taxpayers.”

State officials particularly have focused on improving investment returns since a May 2023 report from Yale University researchers found Connecticut’s results badly lagged the nation’s over the prior decade.

Russell, who took office in January 2023, had focused on adjusting the state’s portfolio and embracing several of the Yale researchers’ recommendations. The treasurer’s office has reduced investments in emerging ventures, put more funds into private and domestic markets, and curbed reliance on investment managers who receive fees for their work.

The treasurer’s office also has been greatly assisted by Lamont and the legislature. Since 2020, the state has used nearly $7.7 billion from budget surpluses to make supplemental payments into pensions for state employees and municipal teachers. And another $850 million from last fiscal year’s $1.6 billion surplus will go into the pensions this fall.

Among public pension fund management programs holding at least $10 billion or more in assets, Connecticut’s performance was in the top 25% last fiscal year, according to Russell’s office. Among programs with at least $1 billion, Connecticut was in the top 18%.

“We’re building a national reputation of prioritizing our pension funds, of shoring up our fiscal condition,” Russell said.

Lamont, who joined the treasurer during a late morning press conference to tout the investment returns, noted Connecticut has nearly doubled its pension assets over the past decade.

“You’ve come a long way, baby,” the governor said, before quickly adding, “but we have a long way to go.”

Connecticut entered this fiscal year with nearly $37 billion in unfunded obligations in its pension funds for teachers and state employees, and analysts project required annual contributions toward those funds will continue to place strong pressure on state finances well into the 2030s or 2040s.

Among public pension management programs with at least $10 billion in assets, Connecticut’ performance over the past decade is in just the 79th percentile. Among those with at least $1 billion, it ranks in the 40th percentile.

Still, the governor said the state is making considerable headway at reversing its pension investment return problems.

“Let’s put it mildly: we were not out-performers over the last 20 years,” he added. “But we’ve been out-performers over the last couple of years.”

Also Wednesday, Lamont announced he has appointed Philip Zecher of Stamford to serve as the new chairman of the Connecticut Investment Advisory Council, the five-member volunteer panel that helps the treasurer plan the assignment of state-held pension assets.

Zecher succeeds D. Ellen Shuman of New Haven, who recently announced she would step down as chairwoman but would remain a member of the panel.

Zecher is chief investment officer for Michigan State University and oversees the institution’s $4.2 billion endowment. He was tapped to start the MSU investment office, which is headquartered in Stamford, in 2016.

Zecher was named one of the top 30 endowment chief investment officers by Trusted Insight magazine in 2020, according to the Lamont administration.

“Phil has spent his career in the arena of finance and investment, and his experience working for organizations in both the public and private sectors will bring a fresh set of ideas and perspectives to our state as we work to increase the returns on our investments, strengthen our finances and save taxpayers’ money,” Lamont said.

The governor also praised Shuman, saying, “Her input and guidance have always been valuable to our investment policies.”

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