- Report Published -
|Virginia Retirement System Comprehensive Annual Financial Report for the Year Ended June 30, 2008|
|Virginia Retirement System|
|After four years of exceptional performance, the Virginia Retirement System (VRS) experienced a -4.4% return on its investment portfolio for fiscal year 2008, ending the year with $55.1 billion in assets.|
While the portfolio outperformed its policy benchmarks, absolute returns suffered due to stress in the housing and credit markets and general economic weakness. In this environment, risk premiums increased, resulting in lower market prices for equities and other risk assets.
The fund’s private equity and fixed income programs produced returns of 15.5% and 6.3%, respectively, while real estate investments generated a 4.1% return. The fund’s public equity program experienced a -10.4% return and the credit strategies program had a -4.7% return. The portfolio included $30.5 billion in public equity, $11.2 billion in fixed income, $4.5 billion in private equity, $4.1 billion in real estate and $4.0 billion in credit strategy investments as of June 30, 2008.
Since July 1, the market has continued to experience significant declines. At October 31, 2008, the VRS fund stood at $43.0 billion. The Board remains confident, however, in the global economy's long-term growth prospects and the fund's ability to generate acceptable returns over a long investment horizon. Putting fiscal year 2008 into perspective, the fund's three-year annualized return was 8.9%, and its five-year annualized return was an outstanding 11.3%, exceeding both our investment policy benchmarks and our long-term actuarial return assumption of 7.5%. This performance keeps the VRS fund in the top quartile among public pension funds across the country and stands as a testament to the skills and abilities of our investment staff.
VRS’ administrative division also outperformed its benchmarks for the fiscal year, exceeding its standards for paying benefits accurately and on time, processing retirement and other benefit applications and performing many other critical business functions on behalf of our members, retirees and employers. In addition, the administrative staff implemented the following key initiatives:
• A comprehensive retirement planner in myVRS, a secure online system that provides members and their employers access to member information.
• Secure online access for retirees through myVRS.
• Continued “early wins” toward VRS’ long-term modernization program, including improvements in the efficiency of workflow processes and streamlining the process of certifying and paying claims as a result of a member’s death.
• The groundwork to begin working with selected vendors to implement the modernization program over the next four years.
• Self-funding the VSDP Long-Term Care program, seeded with a return of reserves from the previous insurance carrier of $21 million.
• Automatic enrollment for state employees in the Commonwealth of Virginia 457 Deferred Compensation Plan and Virginia Cash Match Plan.
• Unitization of the VRS Trust Fund, in collaboration with the Investment Division, to allow defined contribution plan members to purchase shares in the VRS Investment Portfolio (VRSIP).
• Preparing for Senate Bill 1166, which provided increased retirement benefits for a number of law enforcement groups and made enhanced coverage for all deputy sheriffs mandatory effective July 1, 2008.
Finally, VRS runs efficiently. CEM Benchmarking, Inc., a research and assessment service for national and international public pension systems, reported that VRS’ total adjusted cost of administration for the previous year was $44 per active member and annuitant. This compares to our peer group average of $76 for the largest U.S. public pension systems participating in CEM.
Although the investment picture dimmed this year because of market volatility, the VRS investment and administrative staff, in typical fashion, turned in an exceptional performance. Our mission to provide financial security for members and retirees depends on these knowledgeable and dedicated people as well as responsible governance by the Board of Trustees.