NOVEMBER 2012 VOICE: Buoyed by a strong market surge, the Commonwealth’s $50 billion Pension Reserves Investment Trust (PRIT) Fund increased in value by 8.27% for the first eight months of this year.

This is in contrast to our headline earlier this year, which reported that Year 2011 had been a dismal year with zero earnings, and a closing value of $47.1 billion.

Global equities, which includes both domestic and international stocks is the bellwether sector of the PRIT fund. With a return of 10.15% thus far through August, this sector effectively pulled the total fund up to its 8.27% earnings.

However, equities, which can be a big winner in good market years, can also be a drain on the fund’s value, when there is an extended market slump, a major example being Year 2008 when the fund lost 29.5% of its value. This was the year of the market crash, with equities losing as much as 40% in value.

Since 2008, the PRIM Board has been gradually reducing the PRIT Fund’s equity allocation in order to lessen the volatility of a high equity exposure. Allocations in other asset categories such as bonds, hedge funds, commercial real estate and timber/natural resources have been broadened.

The move to reduce equity exposure had actually started prior to 2008 when the PRIM Board acknowledged that the volatility of high market swings was not acceptable. Many of our state’s local government systems with a more conservative asset allocation suffered losses in 2008 but not as extreme as PRIT.

PRIT’s annualized investment return since its inception in 1984 is now 9.48%, placing the fund in the top quartile of all state, teacher and municipal funds in our country.

Local Systems Participate

Some 96 of our state’s 103 local retirement boards have placed pension funds with PRIT for investment. Of this number, 42 have placed their entire fund with PRIT, while 54 boards have voted to invest in various categories of PRIT. This is known as “segmentation,” which enables these boards to reduce management fees.

Woburn, for example, utilizes PRIT for hedge funds, emerging markets and international equity management, while privately managing the bulk of its $100 million fund.

One the other hand, neighboring Stoneham has placed its entire $55 million fund with PRIT for investment management.