PIERRE, S.D. (KELO) — The Legislature’s Executive Board learned Monday that the South Dakota Investment Council earned 4.88% on more than $12 billion of retirement funds during the fiscal year that ended June 30.
The council manages a portfolio of 88.5% from the South Dakota Retirement System, 10% of state-managed trust funds for other purposes and 1.5% of state government cash.
The SDRS portion stood at approximately $12.460 billion June 30, up from one year earlier when the investments were worth about $12.222 billion.
The 2019 performance earned 47 percent bonuses for state investment officer Matt Clark and other staff members in the state investment office at Sioux Falls.
“We’ve aligned the compensation to the performance,” Loren Koepsell of Sioux Falls told the legislators. He is chairman for the investment council.
Clark will receive $219,168 in addition to his $466,157 base compensation. Other staff will share approximately $1.7 million.
The bonuses could have been as much as $9 million, according to Koepsell.
The council has eight voting members. Five are appointed by the Legislature’s Executive Board. The state treasurer, state commissioner of school and public lands and the South Dakota Retirement System executive director are the other council members.
House Speaker Steven Haugaard, R-Sioux Falls, discussed use of third-party research with investment officer Clark, who said it’s used as background on industries and specific companies. The investment office’s staff does its own research, Clark said.
“We’re taking what they come up with and thinking, ‘What would normal be?'” Clark explained.
Clark said his staff follows 2,000 companies and can’t listen to all of the quarterly conference calls. “We basically need to leverage off their work,” he said.
That can range from one paragraph to 200-page reports, he said.
Clark told the board that his office has substantially reduced its investments because stock prices are unusually high. Clark invests as a contrarian, buying investments when prices are low and selling as they progressively get higher.
“We’re in that painful waiting period now. It could last several years,” Clark acknowledged. He added, “The key is that you hang in there.”
Koepsell said the other key to South Dakota’s success is holding down its operation costs. Based on current prices, they will be just under one-tenth of 1% of the more than $12 billion that’s invested.
“We’re a very cost-efficient operation,” Koepsell said.
Haugaard thanked Clark and his staff for their performance, noting their earnings in the past year. “Five million dollars increase per week — that’s pretty good,” Haugaard said.
Clark said he actually wants the market to climb higher in the next year and that gets little or zero bonus, so the retirement system can take greater advantage when prices fall.
“This way, we earn it for the right reasons,” Clark said.
Haugaard responded, “I think it’s based on smarts too.”
SDRS performance has varied sharply year to year. Returns were 7.9% in 2018; 13.8 % in 2017; 0.3 % in 2016; 4.2% in 2015; 18.9% in 2014; 19.5% in 2013; 1.9% in 2012; 25.8% in 2011; 18.7% in 2010; a negative 20.4% in 2009; a negative 8.7% in 2008; and 21.4% in 2007.
Haugaard also praised Rob Wylie, who plans to retire on or about December 1 as the executive director for the retirement system. He was promoted to the top spot in 2003.
The system represents state government, counties, municipalities, school boards and other units of local governments across South Dakota.
“It has been a pretty amazing ride,” Wylie said. He noted South Dakota’s system functions differently than many other public plans in the nation because the flexible benefits are closely connected to the investment system’s performance.
The Legislature in 2016 authorized the retirement system to start a second plan for employees who joined after June 30, 2017.