Audit of the Pension Reserves Investment Management Board Overview of Audited Entity

This section describes the makeup and responsibilities of the Pension Reserves Investment Management Board.

Overview

The Pension Reserves Investment Management Board (PRIM) was established by Chapter 661 of the Acts of 1983, and later amended by Chapter 315 of the Acts of 1996, to oversee the management of the Pension Reserves Investment Trust (PRIT) Fund. The PRIT Fund, established by the same legislation, is the investment portfolio for the assets of the Massachusetts State Employees’ Retirement System, the Massachusetts Teachers’ Retirement System, the State Retiree Benefits Trust Fund, and other Massachusetts retirement systems that elect to invest in the fund.

PRIM’s website states the following:

PRIM serves as a professional investment service for public employees. Our mission is to provide a professional investment service for public employee retirement funds that maximizes the return on investment within acceptable levels of risk. We broadly diversify its investment portfolio, capitalizing on economies of scale to achieve cost-effective operations, and provide access to high quality, innovative investment management firms.

According to Section 23(2A) of Chapter 32 of the Massachusetts General Laws, PRIM is governed by a nine-member board. According to PRIM’s website,

The nine-member PRIM Board acts as Trustee for each retirement system that invests in the PRIT Fund and is responsible for the control and management of the Fund.

The Treasurer and Receiver-General of the Commonwealth, or his/her designee, is a member ex officio of the PRIM Board and serves as its Chair. The Treasurer also appoints one member of the PRIM Board, who is a private citizen with an investment/business background. The Governor, or his/her designee, is also an ex officio member and appoints two members of the Board: one is a non-state official or employee, and one is a representative of a public safety union. The State-Teachers’ Retirement System has two representatives on the Board: the members of that Retirement System elect one, and one is an Elected Member of the Massachusetts Teachers’ Retirement Board. The State Employees’ Retirement System has two representatives on the Board: the members of that Retirement System elect one, and one is an Elected Member of the State Employees’ Retirement Board.

PRIM has the following five advisory committees: the Investment Committee, the Real Estate and Timberland Committee, the Administration and Audit Committee, the Compensation Committee, and the Stewardship and Sustainability Committee. According to PRIM’s website,

The committees review and analyze proposed investments and issues under their jurisdiction and make recommendations to the Board for consideration and approval by Board vote. Committee members are appointed by the Chair and approved by the Board.

The board is responsible for appointing PRIM’s executive director, outside investment managers, custodians, advisors, and other positions it deems necessary to fulfill PRIM’s mission. The board also has the authority to formulate policies and procedures and to take other actions as necessary and appropriate to manage the assets of the PRIT Fund.

The executive director is the senior executive in charge of PRIM and is responsible for planning, directing, and executing PRIM’s administrative and investment activities in accordance with the policies and directives of the board.

As of June 30, 2024, PRIM’s staff members consisted of an investment team of 31 employees and a finance and operations team of 31 employees. The investment team works on the management of the PRIT Fund, and the finance and operations team works on financial reporting for the PRIT Fund and on all other administrative support.

According to PRIM’s “Investment Policy Statement,”

PRIM’s overall objective [regarding managing the PRIT Fund] is to achieve the highest level of investment performance that is compatible with its risk tolerance and prudent investment practices.

According to Section 22C of Chapter 32 of the General Laws, by 2040, the PRIT Fund should be fully funded to meet the Commonwealth’s pension obligations. The PRIT Fund is and continues to be funded through annual payments made by the Office of the Comptroller of the Commonwealth in accordance with a funding schedule approved by the Legislature and through the accumulation of employee contributions and investment returns in the fund.

Retirement Systems

Massachusetts county, city, and town retirement systems that choose to invest in the PRIT Fund may choose to enroll as either participating retirement systems or purchasing retirement systems. Participating retirement systems—of which there are 37 as of June 30, 2024—are required by Section 22 of Chapter 32 of the General Laws to invest all of their retirement funds in the PRIT Fund; also, their assets must remain in the PRIT Fund for at least five years. Purchasing retirement systems—of which there are 62 as of June 30, 2024—can invest part of their funds in the PRIT Fund; also, they are able to contribute and withdraw assets at will. Both participating and purchasing retirement systems share in the investment earnings of the PRIT Fund based on their proportionate share of investments.

For local systems that may want to pursue their own individual asset allocation strategy within the PRIT Fund (as opposed to adopting the allocation strategy of the overall PRIT Fund), retirement boards can elect to invest in individual asset classes,² or segments, of the PRIT Fund. This segmentation option gives local retirement boards flexibility to choose specific asset classes in whatever proportions they believe best suit their needs.

Investment Managers

Section 23(8)(a–c) of Chapter 32 of the General Laws requires PRIM to establish policies regarding investments with emerging managers. Specifically, Section 23(8) of Chapter 32 of the General Laws states the following:

b)   It shall be the goal of the PRIM board that not less than 20 per cent of investment managers be minorities, females and persons with disabilities. It shall further be the goal of the PRIM board to utilize businesses owned by minorities, females and persons with disabilities for not less than 20 per cent of total contracts awarded [to investment managers].

c)   Annually, not later than January 15 of each year, the PRIM board shall file with the house and senate committee on ways and means and with the joint committee on public service a report detailing its progress toward implementing the policies and goals outlined [in Section 23(8)(b) of Chapter 32 of the General Laws]. Such report shall include documentation related to all minority investment managers considered for investment, including documentation, where applicable, of the reasons for declining any such investment.

To achieve its goal of having at least 20% of its assets under management (AUM) by minorities, women, or people with disabilities, PRIM developed the Emerging-Diverse Manager Program.

PRIM’s “Investment Policy Statement” defines emerging managers as investment managers with less than $2 billion in AUM; this includes managers new to the investment industry, managers experienced in the investment industry with smaller portfolios, and managers who identify as minorities, women, or people with disabilities. PRIM aims to invest with emerging managers across all asset classes and to allocate between 5% and 10% of all new and established investments to these managers. To support this initiative, PRIM may consult advisors to help identify suitable emerging managers.

PRIM takes several steps to partner with emerging managers, such as allocating capital to emerging managers, reducing barriers typically faced by managers new to the investing industry, such as startup cost and lack of brand recognition in the industry, and encouraging emerging managers to work with PRIM. As part of its commitment to understanding and promoting diversity within investment firms, PRIM conducts an annual request for investment managers to complete the Lenox Park Survey.³ This survey is meant to be a self-assessment tool, allowing managers to evaluate and report on their diversity practices and workforce composition.

According to PRIM officials, PRIM evaluates its emerging managers by reviewing a monthly performance measurement tool called the Net of Fees report, which its custodian bank⁴ compiles. The Net of Fees report provides PRIM with detailed information on the calculation of investment returns after accounting for any associated fees. This report is essential for assessing whether investment managers meet or fall short of the target rate of return. Such evaluations can influence future funding rates and liabilities.

Additionally, the board approves benchmarks,⁵ which are recommended by PRIM’s outside consultant. PRIM uses these benchmarks to compare the performance of each asset class on a monthly basis against the approved standards. For example, as of June 30, 2024, the benchmark return for total domestic equity for the quarter was 3.34%. This means that all assets considered to be within the realm of domestic equities (e.g., the Standard and Poor’s 500) were compared against a return of 3.34% between April 1, 2024 and June 30, 2024. PRIM staff members conduct a quarterly review with each investment manager to ensure that undue risks, such as performance that is not meeting the benchmarks, do not affect the PRIT Fund. For these performance review discussions, PRIM uses the monthly Net of Fees report.

However, if any concerns arise—such as poor investment performance, market volatility, excessive turnover, or challenges with the investment manager or firm—then PRIM may choose to terminate the contract, liquidate securities, or close the investment manager’s account within the custodian bank system.

Management Fees

According to PRIM officials, PRIM’s custodian bank calculates the performance of the PRIT Fund, the amount gross of fees, and the amount net of fees.⁶ PRIM reports the account balance, including the net of fees because it accurately reflects the PRIT Fund’s performance after considering all associated fees and expenses. Furthermore, PRIM employs various methods to ensure transparency regarding its investment management fees. For example, PRIM annually prepares a budget that details its estimated investment management fees; also, PRIM quarterly compares budgeted management fee expenses to the actual expenses. This comparison is included in the documentation for PRIM Administration and Audit Committee meetings, as well as for board meetings.

Management fees are established during contract negotiations between PRIM and the investment manager. Each month, PRIM staff members retrieve the net asset value (NAV)⁷ on the fourth business day to calculate the management fee according to the contract terms for each investment manager for public markets. After completing the calculation, PRIM staff members obtain the Net of Fees report, from the Microsoft SharePoint database for review. PRIM staff members examine the Net of Fees report to ensure that all new investment managers added during the month are accurately reflected. The report is then reviewed for reasonableness on a monthly basis for public markets.

According to PRIM officials, management fees for nonpublic markets are calculated either monthly or quarterly, depending on the investment manager. Each month, PRIM receives an invoice that details the monthly accruals. PRIM investment staff members review this invoice, comparing it to the estimated and final NAV and return information to ensure proper accrual of management fees. Below is an example of a fee schedule.

Assets Under Management	Tiered Annual Fee
First $100 Million	0.28%
Next $100 Million	0.16%
Over $200 Million	0.13%

Fees are not paid until they have been reviewed and approved by PRIM’s investment operations team.

Stewardship and Sustainability Committee

PRIM renamed the Environmental, Social, and Governance (ESG) Committee to the Stewardship and Sustainability Committee in October 2023. The goal of the committee is to ensure the continued success and protection of the PRIT Fund, particularly regarding environmental, social, geopolitical, legal, and policy issues. These factors are constantly evolving and as such may impact the PRIT Fund.

Stewardship and Sustainability staff members conduct and provide research, participate with external organizations and partners in ESG initiatives, and provide ESG education for the Stewardship and Sustainability Committee and PRIM. Additionally, Stewardship and Sustainability staff members assist in selecting external ESG advisors and work with PRIM investment staff members to help ensure that approved Stewardship Priorities are integrated into overall investment strategies.

As of December 2024, the Stewardship and Sustainability Committee does not make any investment recommendations but worked with the Investment Committee and the Real Estate and Timberland Committee on suggesting ESG-investment strategies. The Investment Committee and the Real Estate and Timberland Committee remain responsible for making all investment recommendations to PRIM. The Stewardship and Sustainability Committee is responsible for providing proxy voting recommendations to PRIM.

2.    According to PRIM officials, an individual asset class is a group of investments that have similar characteristics, such as cash and cash equivalents, bonds, real assets, and stocks.

3.    Lenox Park Solutions is a data analytics company that works with financial service companies, or similar agencies, to gather information and statistics on diversity, equity, and inclusion for the companies that contract with it.

4.    A custodian bank is a financial institution responsible for safeguarding the assets (e.g., bonds or cash) of its clients and maintaining possession of these assets. These banks often offer related services, such as managing accounts, handling taxes, and distributing dividends. These banks are generally not engaged in other consumer banking services, such as lending.

5.    According to PRIM officials, a benchmark is a standard used to measure the change in asset class performance over a period.

6.    According to PRIM officials, the term gross of fees refers to the total value of assets under management before deducting any investment-related expenses (which include management fees, investment advisory fees, and custodian fees). In contrast, the term net of fees refers to the value of assets under management after deducting investment-related expenses from the gross value.

7.    According to the US Securities and Exchange Commission’s website, the NAV is the fund’s total “assets minus its liabilities.”

Date published:	November 13, 2025