Tuesday, October 17, 2006

We're # 1: Top Performance in Investment Fund

Connecticut State Treasury Investment Fund # 1 in USA

Monday State Treasurer Denise Nappier issued a press release touting the performance of the State Treasury Investment Fund (STIF). According to TRACS Financial Research, STIF has ranked as the #1 government investment pool in 9 of the past 11 months, out of the 80 funds it tracks. The other two months, Connecticut came in as the #2 fund. The State Treasury, state agencies and municipalities are some of the entities that invest liquid cash investments into the investment fund. This is good news for Connecticut towns and municipalities who seek to increase revenue diversification from solely relying on property taxes.

Since 1999, the total number of state, local and regional agencies and authorities participating has grown from 241 to its current 320. Of Connecticut's 169 towns, 136 invest with STIF. More details can be found in the actual press release.

The Press Release 10/16/2006

8 comments:

Anonymous said...

DeStefano is coming out with an ad showing Jodi saying Rowland was the greatest Governor ever and putting it juxtaposed to her statement about mistakes. DeStefano and Schlesinger both have personalities in this campaign while the rest are stuffed shirts or play dolls.

GMR said...

Please note that STIF stands for "Short Term Investment Fund" and not "State Treasury Investment Fund."

While it is good that Connecticut's short term fund did well, this is for cash on hand that needs to be paid out relatively soon. These investments are typically risk-free or close to it (i.e., short term notes issued by AAA companies like General Electric or by the federal government), because they are just temporary...

The short-term fund earned 0.37% more than the normal state funds in FY 2006 (which ended June 30), and earned 0.35% more in the 1st quarter of FY 2007 (which ended September 30, 2006). In the first quarter, CT's STIF earned 5.36% versus 5.01% for comparable funds. (This isn't bad, of course, but I wonder if CT's fund was riskier than other comparable funds, although the press release says that's not the case).

For the long-term, Connecticut has a State pension fund which had $22.9 billion as of June 30, 2006. This fund earned about 12% per year during the last three years (not counting inflows and outflows). In FY 2006 the pension fund earned 11.2% (the S&P 500 index, by comparison, earned 8.63%).

FY06's strong performance in the pension fund was lead by international stocks, which grew 26.4%, and alternative investments (private equity), which grew 16.5%. Domestic equities fell 10.6% (and this is probably what the S&P should be benchmarked against).

So in any event, looks like the State of CT had great performance in Short term securities and foreign stocks, and lousy returns in domestic stocks. But it may have put more money in the winning buckets than other states as well, this I don't know.

Anonymous said...

How does all this compare to the job Sylvester was doing before nappier got the job?

turfgrrl said...

GMR--Yes, I wrote the wrong definition of STIF. I think that the pension fund, according to the Courant Nappier said in the article. "We perform better than 71 percent of the pension funds in the country. The average is 50." link.

Anonymous said...

gmr did a nice job summarizing.
I would guess that the strong showing in international investments was no doubt helped by the slide in the value of the dollar.
As to the strong showing for "private equity", I would note that these investments are "marked to market" (which is Wall Street speak for estimating their value if put up for sale)since no ready market exists for them, and they should be viewed with some degree of caution.

GMR said...

How does all this compare to the job Sylvester was doing before nappier got the job?

That's actually not an easy thing to measure. Sure, you can see how the fund did during each person's tenure, but if you were treasurer during the crazy boom years of the late 1990s, you will have made a pile, whereas if you were there after 9/11 and the corporate scandals, you'd be hard pressed to have made money.

Another thing you need to look at is what kind of risk each treasurer is taking, and whether or not that level of risk is appropriate (which should really be based on when you think the pension funds will be redeemed by the retirees: if you have a lot of people in their 50s in the system, the investments need to be very conservative, whereas if you have a lot of 20somethings in the pension plan, you should have a riskier fund.

The Republican running for this office is bitching that Connecticut is not in the top 10% or whatever, which is in itself a pretty stupid thing to say. Just because we have a lot of investment professionals in the state doesn't mean that we should or could be in the top 10% of states. If we have more people nearing retirement than other states, we need to have a more conservative portfolio. Some other states may have gotten lucky, or may have taken excess risk (such as not properly diversifying, which may help in the short term).

To say it another way, if a treasurer candidate thought he or she could get into the top 10% of states, then you need to ask yourself why this person isn't working at a financial firm, where the compensation would be a heck of a lot more than the state treasurer. Believe me, the Greenwich hedge funds would kill for someone who could get them into the top 10%.

Do I have any idea of Denise Nappier is doing a good job with the pension? On the surface, it would seem so, but without knowledge of what risks have been undertaken, I can't say definitively.

Oh, and in my previous entry, I said domestic equities fell 10.6% in FY 2006. They rose 10.6%, but the press release had the number in parentheses, and usually, that means negative.

One thing JDS wants to do is get the CT Pension fund to invest $50 million into various alternative energy projects. I'm really skeptical of this, mainly because the pension fund should be used to make money for retirees, not invest in your pet projects. The investments need to be evaluated on a risk/reward basis.

Anonymous said...

Sylvester went to jail.

GMR said...

I would guess that the strong showing in international investments was no doubt helped by the slide in the value of the dollar.
As to the strong showing for "private equity", I would note that these investments are "marked to market" (which is Wall Street speak for estimating their value if put up for sale)since no ready market exists for them, and they should be viewed with some degree of caution.


I too had originally thought the foreign investment returns were due to a weakening US Dollar, but that's not what did it.

There were 0.829 Euros per dollar at the beginning of the fiscal year and 0.7969 at the end of the fiscal year (6/30/06).

GBP: 0.5543 to 0.5507 (hardly any movement)
CAD: 1.2287 to 1.1201 (fairly significant)
JPY: 110.58 to 116.32
AUD: 1.3132 to 1.3701
CHF: 1.2829 to 1.2467

So not a huge deal of movement except with the Canadian dollar. Over a few years, international stocks would have been significantly helped with the weakening US Dollar, but by the start of FY06, most of the drop had already happened.

Good point about marking to market: when you invest in private equity, you have to then guess (well, the fund manager of the private equity fund has to guess) about the value of each company. But it's not the state of CT that's doing the guessing, it's the private equity funds in which the state invested.