The San Bernardino County Employees’ Retirement Association (SBCERA) reported a 14.0% return on investments in 2012, for an increase of $829 million. The performance places the fund in the top 20th percentile on a total return basis among its peers. On a risk adjusted basis, the Fund ranked in the 2nd percentile for the one-year period and 1st percentile for the three-year period.
For the calendar year of 2012, SBCERA greatly outperformed its policy benchmark by 310 basis points and reached a record $6.7 billion in assets under management, exceeding its previous record of $6.4 billion in October 2007. For the fiscal year, the Fund is up by 7.7% and is well-positioned to meet its actuarial assumed rate of return of 7.75% through June 30, 2013.
“The last few years have been extremely volatile. However, as long-term investors we have a major advantage – time. We can carefully choose value-focused investments that allow us to benefit from longer time horizons for investment returns,” said Donald Pierce, SBCERA’s Chief Investment Officer (CIO). “Our performance reflects our success building a sound investment program focused on actively managing assets, diversifying into non-traditional, income-producing assets, and reducing our overall risk in order to meet long-term expectations.”
Since the “financial collapse” of 2008, there has been a heightened interest in risk management and how funds can protect themselves from devastating losses like those experienced in 2008-2009. SBCERA’s risk management efforts have centered on two strategies: dynamically managing its asset allocation and earning a steady stream of income by reducing its dependence on price appreciation. For example, SBCERA looks for investment opportunities that provide consistent revenue, such as rent, premiums or interest, rather than relying primarily on the purchase and sale of assets.
Since 2005, SBCERA has greatly improved its ability to actively manage assets through its informed rebalancing program. The program has evolved over time. Initially, it was used to rebalance physical assets (i.e. real estate, private equity), but in 2007 SBCERA added synthetic rebalancing to further reduce risk. Last year, the rebalancing program added $167.8 million to the Fund, which represented nearly 20% of its gains for the year.
“We have an obligation to maintain the safety and security of the Fund on behalf of our retirees and beneficiaries. Risk is our top priority,” said Dawn Stafford, Chair of the Board of Retirement. “Over the last three years, our risk management efforts have paid off. SBCERA is earning favorable returns without taking as much risk as others.”
For the three-year period, on a risk adjusted basis, SBCERA stood out among its peers. The Fund’s annualized returns for the three year period were 9.9% per year, which ranked in the 20th percentile on a total return basis. SBCERA’s Alpha (a risk-adjusted measure of a fund’s excess return relative to the return of the fund’s benchmark index) ranked in the 1st percentile at 4.6 compared to the median public fund’s value of -0.2. In addition, the Fund’s Sharpe Ratio (an industry measurement for risk adjusted returns) was 1.7, ranking in the 1st percentile for the three year period.