by Bradley Parsons
Staff Writer
The Police and Fire Pension Fund navigated the choppy waters of the last fiscal year’s stock market to beat the fund’s targeted rate of return.
Each year the Fund projects to return 8.5 percent on its investments. For the fiscal year ended Sept. 30, the Fund gained more than $76 million, a return of 9.5 percent in what administrators described as “a very difficult investment environment.”
The Fund has traditionally invested about 60 percent of its assets into the stock market. But four years of uneven performance have convinced administrators to look for more stable investments like office real estate. Early in the last fiscal year, the Fund rode a surging market to about 15 percent gains, but much of that value disappeared as the market slid. For the year, the approximate $800 million fund outperformed the market, which lost money, said Fund administrator John Keane.
“Early in the year, we were up substantially more, but several external events had a disruptive effect on the market,” said Keane. “For the year the market is still down, so our results look better.”
Keane said a number of factors weighed down the market as it continues to struggle to reach year 2000 heights. The next year, the Dow Jones plunged from over 11,000 to 7,000. The Fund declined during that period, losing 2 percent in 2001 and 6.8 percent in 2002. Last year’s market was stalled by the presidential election, high oil prices, international tensions and the economic cost of the Florida hurricanes, particularly to insurance companies. Still, the fund managed to surpass its projections.
“Any time we exceed our actuarial assumption (8.5 percent), that’s good news,” said Keane.
One unexpected loss came from the Fund’s holdings in Merck. The pharmaceutical firm recalled Vioxx, one of the most widely-prescribed pain medicines on the market and a huge earner. Facing the loss of its earning from the pill and what could be a wave of lawsuits from its side effects, Merck’s value tumbled.
“When they had to recall one of their flagship drugs, it really whacked that stock, which had been a consistent performer for us,” said Keane.
With the election past, Keane said the market is expected to settle. He said Bush’s economic policies are generally well-received on Wall Street and hoped that consistent foreign policy would help bring down oil prices.
After three years of watching the stock market sputter, the Fund is moving a substantial chunk of its assets into a real estate market that administrators hope will provide steady growth.
The Fund will continue to invest a majority-about 55 percent-of its money into the market, but it’s diverting about $40 million out of stocks and into real estate. That would bring the Fund’s real estate holdings to about $80 million or 10 percent of its total value.
About half that money will flow into Class A office buildings nationwide. That money is set aside to acquire established landmark buildings, which attract big clients and higher rents. These relatively stable investments will be balanced by investments with more risk but more financial upside.