Overview
The Pension Reserves Investment Management Board (PRIM) was established through Chapter 661 of the Acts of 1983, and later amended by Chapter 315 of the Acts of 1996, to provide general supervision of the investments and 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.
According to its website,
The Pension Reserves Investment Management Board’s mission is to provide a professional investment service that maximizes the return on investment within acceptable levels of risk by broadly diversifying its investment portfolio, capitalizing on economies of scale to achieve cost-effective operations, and providing access to high quality, innovative investment management firms, all under the management of a professional investment staff and members of the PRIM Board and its committees.
PRIM is governed by a nine-member board of trustees. The board includes the State Treasurer, ex officio, or her designee, who is the board chair; the Governor, ex officio, or his designee; a private citizen who is experienced in the field of investment or financial management, appointed by the State Treasurer; an employee or retiree who is a member of the Massachusetts Teachers’ Retirement System and is elected to this board by the members of that system; an employee or retiree who is a member of the Massachusetts State Employees’ Retirement System and is elected to this board by the members of that system; an elected member of the Massachusetts State Retirement Board; an elected member of the Massachusetts Teachers’ Retirement Board who is elected to this board by the members of the Massachusetts Teachers’ Retirement Board; a person who is not an employee or official of the Commonwealth and is appointed by the Governor; and a representative of a public safety union who is appointed by the Governor.
PRIM has also established four advisory committees: an administration and audit committee, a compensation committee, an investment committee, and a real estate and timberland committee. The purpose of these committees is to help PRIM carry out its duties, as well as to offer counsel on investment decisions and PRIM’s general operations.
The members of the PRIM board of trustees, as trustees for each retirement system that invests in the PRIT Fund, have the authority to employ an executive director, outside investment managers, custodians, and consultants to develop policies and procedures needed to manage the assets of the PRIT Fund. The executive director, with the assistance of the staff, has a duty to assist the board of trustees and its committees in creating investment and administrative policy, implement the policies and programs created by the PRIM board of trustees, and report to the PRIM board of trustees on the status of the PRIT Fund and the operations of PRIM.
As of June 30, 2017, PRIM employed 41 people. PRIM’s staff is divided between two groups: an investment management group of 16 employees and an administrative group of 25 employees. The investment management group works on the management of the PRIT Fund, while the administrative group works on financial reporting for the PRIT Fund and on all other administrative support.
According to PRIM’s Investment Policy, its investment objective is to manage the PRIT Fund to “achieve the highest level of investment performance that is compatible with its risk tolerance and prudent investment practices.” Under Section 22C of Chapter 32 of the Massachusetts General Laws, by 2040, the PRIT Fund should be fully funded to meet the Commonwealth’s then-existing pension obligations, through annual payments made to the fund in accordance with a funding schedule approved by the Legislature and through the accumulation of investment returns in the fund. The Commonwealth has adopted a schedule of state pension appropriations that assumes a long-term actuarial rate of return1 of 7.50% for the PRIT Fund. As of June 30, 2017, the PRIT Fund’s five-year annualized return was 9.76% (gross of fees), outpacing the current 7.50% rate of return assumed by the state pension funding schedule.
Massachusetts county, city, and town retirement systems that choose to invest in the PRIT Fund can be either participating retirement systems or purchasing retirement systems. Participating retirement systems are required by Section 22 of Chapter 32 of the General Laws to invest all of their retirement funds in the PRIT Fund and continue doing so for five years. Purchasing retirement systems can allocate part of their funds to the PRIT Fund, with the freedom to contribute and withdraw assets at will. Participating and purchasing retirement systems both share in the investment earnings of the PRIT Fund based on their proportionate share of net assets invested. As of June 30, 2017, there were 39 participating retirement systems (Appendix A) and 55 purchasing retirement systems (Appendix B) with investments in the PRIT Fund.
Chapter 84 of the Acts of 1996 authorizes the retirement boards of Massachusetts authorities, counties, cities, and towns to purchase units in the separate investment accounts of the PRIT Fund as an alternative to investing in the General Allocation Account.2 This investment option, also referred to as segmentation,3 was established by an amendment to PRIM’s Operating Trust Agreement in 1994 in response to requests from Massachusetts retirement systems wishing to invest in separate asset classes of the PRIT Fund.
PRIM maintains asset allocation targets for the PRIT Fund as way of reducing risk and delivering the highest investment return possible at acceptable risk levels. Below is a table highlighting the PRIT Fund’s target allocations and the actual allocations as of June 30, 2017.
|
Asset Class |
June 30, 2017 Actual Allocation* |
Target Percentage |
|---|---|---|
|
Global Equity |
45.70% |
40.00% |
|
Core Fixed Income |
12.00% |
12.00% |
|
Value-Added Fixed Income |
8.10% |
10.00% |
|
Real Estate |
9.10% |
10.00% |
|
Private Equity |
10.60% |
11.00% |
|
Timberland |
3.70% |
4.00% |
|
Portfolio Completion Strategies |
9.50% |
13.00% |
|
Overlay |
1.00% |
0.00% |
|
Liquidating Portfolios |
0.40% |
0.00% |
* This column does not equal 100% because of rounding.
Net assets in the PRIT Fund totaled $60,692,805,000 for fiscal year 2016 and $66,850,441,000 for fiscal year 2017. The PRIT Fund incurred total management fees of $112,129,000 for fiscal year 2016 and $144,004,000 for fiscal year 2017. The PRIT Fund incurred investment management fees of $94,583,000 for fiscal year 2016 and $122,848,000 for fiscal year 2017. It incurred investment advisory fees of $5,935,000 in fiscal year 2016 and $8,074,000 in fiscal year 2017; custodian fees of $805,000 in fiscal year 2016 and $707,000 in fiscal year 2017; and other administrative fees of $10,806,000 in fiscal year 2016 and $12,375,000 in fiscal year 2017. Overall, the PRIT Fund spent 0.18% on fees as a percentage of net assets in fiscal year 2016; the percentage for fiscal year 2017 was 0.22%.
For calendar year 2016, PRIM’s investment returns ranked 70th of the 106 Massachusetts retirement systems. Its five-year annualized returns ranked 56th according to the Public Employee Retirement Administration Commission’s 2016 annual report. The PRIT Fund investment return (gross of fees) was 2.30% in fiscal year 2016 and 13.20% in fiscal year 2017.
| Date published: | April 23, 2018 |
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