RD168 - VRS Oversight Report No. 38 - VRS (Virginia Retirement System) Semi-Annual Investment Report - July 2012


Executive Summary:
Retirement, disability, and other related benefits are paid to retired or disabled members of the Virginia Retirement System (VRS), and their beneficiaries, out of the VRS trust fund. The trust fund held $54.2 billion in assets as of March 31, 2012. For the one-year period from March 31, 2011 to March 31, 2012, the fund achieved a return of 4.0 percent, but decreased in value by $0.2 billion due to payments out of the fund. As of March 31, 2012, the fund experienced positive returns over each of the time periods for which performance was measured. Despite these positive returns, the total fund performed below its established long-term benchmark for the fiscal-year-to-date, one-, three-, and five-year periods. While the fund did outperform this benchmark over the ten-year period by 110 basis points, it did not achieve the assumed rate of return of seven percent over that time. Still, when compared to the intermediate-term benchmark, against which staff performance is measured, the fund performed well.

According to VRS, the chief reason for the fund's underperformance relative to its long-term benchmark is that the benchmark largely reflects the performance of domestic investments, whereas a substantial portion of the trust fund's investments is in global markets. VRS staff have requested that the Board of Trustees consider revising the long-term benchmark by replacing the U.S. equity component with a global equity component. The board's Investment Advisory Committee supports this request, which will be considered by the board's Investment Policy Committee, a standing committee created in 2011.