Officials at the Massachusetts pension fund expect economic cycles and market downturns will periodically affect their investments and the quarter that ended in September "was one of those periods, unfortunately," the head of MassPRIM said as the agency also confirmed that it has connections to the failed cryptocurrency firm FTX.
The Pension Reserves Investment Trust Fund was down 4.7 percent in the quarter, meaning that it fared slightly better than a 60/40 mix of stocks and bonds, which would have declined 6 percent during the same three-month period, MassPRIM Executive Director and Chief Investment Officer Michael Trotsky told the board Thursday.
The retirement funds of state employees, teachers and many municipal employees in Massachusetts are invested through PRIM and its PRIT Fund now stands at $88.6 billion after three consecutive quarters of market declines, Trotsky said Thursday. That's down from $92.4 billion in June and down from a reported $101 billion in assets under management as of the end of October 2021.
"We've had three straight quarters of market declines and this is both painful, obviously, and it's also historic. Not since 1976 have we experienced three consecutive quarters where both equities and bond returns were negative. Both equities and bonds were down each quarter, in the March quarter, in the June quarter and again in the September quarter," Trotsky said.
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Officials at MassPRIM also confirmed to the News Service on Thursday that the state pension fund has taken a loss as a result of a "miniscule and non-material exposure" to the collapsed cryptocurrency exchange FTX, which is seeking Chapter 11 bankruptcy protection as it owes more than 1 million customers an estimated $8 billion in assets that it does not have on hand, according to Yahoo Finance.
"MassPRIM has no dedicated cryptocurrency investments. PRIM does have a miniscule and non-material exposure to FTX through one of our larger growth equity managers. The loss is small and will not impact the overall performance of the fund," a spokesperson for MassPRIM said.
The exposure to FTX did not come up during Trotsky's update to the PRIM Board on Thursday. He told board members that the slumping markets are not all bad news and that the state of the markets carries a silver lining for PRIM.
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"The silver lining is that market downturns create good buying opportunities and the PRIM team has been busy identifying and investing in many new opportunities," he said. "In fact, our deployment of capital to new ideas is $6.9 billion -- $6.9 billion last fiscal year was a 58 percent increase over the previous year. And in this quarter, with your votes, we will deploy approximately $800 million of capital to new ideas."
While his report to the board was specifically focused on the last completed quarter, Trotsky also wanted to fill the board in Thursday on how the markets have fared since September and offered a sliver of optimism for the PRIT Fund.
"The S&P 500, for example, was down more than 15 percent for the 12-month period ending September. But this is the good news: It has gained back more than 14 percent in October and November alone and that means the S&P has gained back nearly the entire 12-month loss in only two months' time," Trotsky said. "This is very welcome news, obviously, and we're hopeful that this trend, the recent strength in the market, continues."
In its November Beige Book, which draws information from banking and business contacts, the Federal Reserve Bank said that business activity in New England "softened slightly amid mixed results" last month. The businesses that provided information to the Fed "remained optimistic for their own results but expected some degree of economic downturn at the regional and national levels in 2023," the central bank said.
"Employment was stable on balance, but labor demand weakened for some positions. Some pricing pressures eased and others intensified, but most prices were about the same as in the last report. Wage growth was steady at a moderate pace, but competition for specialized workers remained intense in some cases," the Fed wrote in its summary for New England. "Restaurant owners in Massachusetts enjoyed robust demand despite having raised their prices in the past year. Office vacancies ticked up slightly amid very weak demand, and rising interest rates deterred new commercial construction and acquisitions."