Risk-Adjusted Return Summary

Date: Feb 22, 2017


The Investment Division recently completed a review of SDCERS’ risk-adjusted return to understand better how SDCERS is being compensated for the risk it assumes in its portfolio. Aiming for a higher return is great, but not if it comes at the cost of taking on excessive risk that threatens the portfolio’s long-term stability.

The first portion of the review was focused on the portfolio as a whole. With the help of Aon Hewitt, staff analyzed how SDCERS has allocated its funds compared to other public pension plans. Staff then analyzed the impact this has had on the risk-adjusted return of the portfolio historically.  Staff also compared the risk-adjusted return of each asset class to their respective benchmarks, providing a clearer picture of how each asset class had performed. The final portion of the review was a forward-looking review which estimated the risk-adjusted return of SDCERS’s portfolio versus its peers for the next ten year period based on their respective asset allocations.

A key finding of this review was that SDCERS’ portfolio has outperformed its peers from a risk-adjusted return perspective. This means that the strategic asset allocation decisions made by staff, the consultant, and the Board of Administration have positively impacted the risk-adjusted return of the portfolio. In addition,  the historical review of each asset class helped identify many of the issues that may have adversely impacted performance in the past. Several of those issues have been addressed by the Board in recent years, e.g., underperforming investment managers, and reducing the small cap equity bias. The forward-looking review showed that SDCERS has a higher risk-adjusted expected return than its peers. 

In summary, SDCERS is favorably positioned from a risk-adjusted return standpoint looking forward. 

See attached PDF documents for further detail:
-Review of SDCERS’ Risk-Adjusted Returns
-Peer Risk/Return Comparison
-SDCERS U.S. Equity 10-Year Risk/Return Chart

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