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Sound Investment Practices

Sound Investment Practices

Envisioning Your Future with MOSERS

[Posted on 05/01/2012 at 8:30 AM]

Sound investment practices result in more than 60% of MOSERS' funding coming from investment returns, not from taxpayers or the state of Missouri.

This is part 4 of a 4-part series illustrating how MOSERS envisions your retirement...with us!

MOSERS’ investment staff members spend their days planning for your tomorrows. Our investment principles focus on the big picture and the portfolio is designed with Missourians in mind. It is our responsibility to reinforce the long-term consistency of the fund and we take that responsibility very seriously, providing members with the assurance of a stable, reliable retirement benefit. MOSERS brings value to our retirees, not just through efficient delivery of benefits, but also in peace of mind, because the lifetime benefit helps in the transition to a confident and dignified new life stage after work life concludes.

MOSERS Investment Professionals Working for YOU

Since November 1957 when MOSERS made its first investment transaction, $100,000 in 90-day U.S. Treasury Bill, the trust fund has grown to over $7.7 billion!

Growth of Fund

2012 Total Fund Growth  

The MOSERS trust fund is invested in a broadly diversified portfolio consisting of a multitude of different assets and investment strategies. This sophisticated portfolio is monitored and managed by a MOSERS team of investment professionals. You can read more about the principles that guide our investment team here and our asset allocation here.

Why are we better than average?


Less Cost for Missourians

Defined benefit plans such as MOSERS are more cost-effective to maintain because the assets are pooled for a large group, rather than for just an individual investor. Less money is needed to fund the plan, because the life expectancy of the entire group is averaged. Defined benefit plans have a long-term outlook throughout generations of its participants, called “risk pooling.” This longer time horizon allows for the maintenance of diversified portfolios. For all of these reasons, defined benefit plans cost 46% less than defined contribution plans to provide the same level of benefits. Thus, defined benefit plans provide a better return on the state’s investment than would a defined contribution plan of comparable cost to the state. Plus, these benefits don’t carry the risk of stopping, leaving the retirees to struggle to find other sources of income as they age.

What Missourians should know about MOSERS’ investments is that MOSERS generates returns that offset the amount the state would otherwise have to contribute. More than half of the funding for the pension plan over the long-term comes from investment earnings. Earnings from our investment portfolio generate dollars on behalf of our members and Missouri taxpayers. This is why we aren’t just another average pension fund. As shown in this graphic, MOSERS’ appropriation equals 1.14% of the entire state budget for FY13. Nationally, defined benefit public pension plans are still only about 3.8% of state/local spending despite news reports to the contrary.

Consistent Funding

The funding objective of MOSERS’ pension trust fund is to meet long-term benefit promises through contributions that remain approximately level as a percent of member payroll over decades of time. The state of Missouri has consistently funded 100% of MOSERS’ annually required contribution (ARC), as determined by the system’s independent actuary. In other words, the state of Missouri has never funded less than what the actuaries have determined to be the appropriate annual amount necessary to fund the system. What that means for our members is that, during your working career, our investment team strives to accumulate assets which will be adequate to finance the benefits payable to, or on behalf of, our members after retirement.

Long-Term Performance

Our 10-year annualized return of 8.1% was in the 4th percentile of public pension funds with assets in excess of $1 billion. Over the past 20 years, our investment results have consistently outpaced our policy benchmark and our peers while the comparative risk we have taken to generate these results has been well below average. During this same period, MOSERS’ investment returns have exceeded the required rate of return by 1.4% and the total fund return outperformed 83% of the public pension funds in the universe of public pension funds with assets in excess of $1 billion.

In June 2012, investment consultant Cliffwater, LLC released an independent report which recognized MOSERS for producing the highest ten-year investment return in the statewide public retirement fund universe for the period ending June 30, 2011. In the same fiscal year, MOSERS also received the aiCIO (Asset International Chief Investment Officer) Asset-Owner Innovation Award for a public pension plan below $15 billion. This award highlights the most innovative and positive work being done for, and at, the world’s largest pensions, endowments, foundations, and sovereign wealth funds.

Our investment staff has a combined total of more than 200 years of collective investment experience, and 145 years at MOSERS alone. The dedication and number of “career” employees means the investment beliefs are carried out consistently over time. You can be assured that a stable, knowledgeable staff is working hard for you. An investment philosophy focused on diversification, managing risk, and the long-term stability of the fund brings returns that aren’t just average, because we know your future depends on it.

Rick Dahl, MOSERS CIO, explains the foundations of our investment principles:

Click for Video Transcript

The good news is that you have a seasoned group of investment professionals here at MOSERS with over 200 years of collective investment experience. That investment experience has been honed over the last 15 years and it has built a set of investment beliefs. We call them “Investment Cornerstones” from which we manage the portfolio. Those cornerstones are an acknowledgement that diversification is critical because the future is unknown, a contrarian investment philosophy, a heightened focus on risk management, and sound governance practices that we use to manage the fund.

Diversification is critical because the future is unknown. As a result of that, we have gone to great lengths to build a diversified portfolio that includes both stocks, bonds, commodities, real estate investments, timberland investments, investments in private markets, and many other diversified strategies that we use to diversify the fund.

The second cornerstone is a contrarian investment philosophy, and what we mean by that is we want to be buyers when others are sellers, and we want to be sellers when others are buyers. What this means is that we’re able to take advantage of cheaper prices as people sell, which provides us with a margin of safety in the investments that we make. It’s that margin of safety that allows us to step in at points in time when others are fearful of the market and are selling.

The third cornerstone of our investment philosophy is a strong risk management focus. Boiled down, what we’re talking about here is spending more time thinking about what can go wrong and what might go right. The end result of that is a defensively positioned portfolio that is built to mitigate downside losses and to capture the majority of our upside returns.

The fourth cornerstone is sound governance practices and what I mean by that are well articulated policies and procedures, goals and objectives, and roles and responsibilities, and just as importantly, sufficient flexibility and resources to implement the program.

It is these cornerstones that have been providing us guidance and comfort for well better than a decade, in making investments for the fund. They have allowed us to generate very strong risk-adjusted returns in the face of uncertainty and we believe they will continue to do so as we face the challenges that lie ahead. In closing, I want you to know the fund is financially solid and able to pay your benefits as we promised.

Special Thanks to Rick Dahl, CIO, MOSERS

Defined benefit plans help recruit and retain the workforce needed to provide essential governmental services to the citizens of the state of Missouri. State workers make sure tax refunds get paid, provide social services, higher education, and many other crucial functions that Missourians rely on in their daily lives.

Missourians can be assured MOSERS is adequately funded and that the state is making its required contributions to the system. We will honor our commitments to state workers by helping them to have a dignified retirement without having to worry about their pension payments stopping.


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Missouri State Employees' Retirement System
Address: 907 Wildwood Dr., Jefferson City, MO 65102 Phone: 800.827.1063 URL: Email: Founded On: September 1, 1957