This story has been further updated.

PIERRE, S.D. (KELO) — South Dakota Retirement System investments returned at least 5.5% for the fiscal year that ended June 30.

That’s according to a preliminary estimate delivered Monday morning to a subcommittee of the Legislature’s Executive Board.

State investment officer Matt Clark said the final number would be slightly higher.

The full Executive Board received the report at its meeting Monday afternoon.

Loren Koepsell of Sioux Falls chairs the South Dakota Investment Council that oversees management of SDRS and other state government funds. He told the subcommittee that the preliminary estimated gain of $824.9 million was $725 million below the capital markets benchmark of 10% for 2023; the benchmark is what would have been earned, if the investments had been in index funds.

When measured across the past 20 years, SDRS has earned $4.5 billion more than had it only met the annual benchmarks, according to Koepsell. “Our goal is to outperform those over the long term by about a half-percentage point,” he said.

“We’re sitting very conservative in our investments, which is the history of SDIC,” Koepsell said. There currently is a heavy concentration in cash, because many stocks appear to be priced higher than their values, he said.

Clark said the council’s contrarian approach is somewhat like a thorn bush that keeps a favorite fishing hole from being overused. “In the short term, it’s very volatile,” he said. “More often it does work out in the end, but usually not for a while.” But, he added, “Sometimes we’re three-four years early. We have to suffer through it.”

Koepsell said he was “definitely happy” with the mix now. A dollar invested in SDRS in 1973 grew to $110 as of June 30, 2022, but would have been worth only $70 if the council had only met the benchmark, he said. Koepsell referred to a chart showing that a performance a half-percent ahead of the benchmark over the next 20 years would add $4.8 billion to the fund. SDRS investments totaled $14.1 billion in value as of June 30, 2022.

Republican Sen. Lee Schoenbeck noted that South Dakota was one of only a few states with a fully-funded government-pension system. Republican Rep. Hugh Bartels, a past member of the Investment Council, said an overlooked point is that SDRS pays $30 million a month in benefits. “It didn’t look like the fund grew the normal amount of money but you have to add the $350 million-plus. That counts,” Bartels said. 

By law, the Executive Board appoints five of the Investment Council’s members. The other three are the state treasurer, the state commissioner of school and public lands and the SDRS executive director.

According to its 2022 annual report, SDRS had 97,830 total members, including 32,348 retirees and other beneficiaries. Members and their employers contribute to the pension fund. Among employers in SDRS are state government and many school districts, counties, municipalities and other local units of government.

A separate SDRS board, some of whose members are elected by the groups they represent while some are appointed by the governor, oversees the retirement system.

SDRS earnings during the past decade

2014 +18.90%

2015 +4.18%

2016 +0.30%

2017 +13.81%

2018 +7.94%

2019 +4.88%

2020 +1.59%

2021 +22.03%

2022 -0.69%

2023 +5.5% (est.)

Source: South Dakota Investment Council