CAT Tracks for April 19, 2012
TRS UNDER ATTACK

...fighting back.

Early morning e-mail:


From the TRS Member Services Division...


From: trsmessenger@trs.illinois.gov
Date: 4/19/2012 12:13:57 AM
To: rjnewell@midwest.net
Subject: TRS Investments

Dear Ronald Newell:

Today the Better Government Association and WBBM-TV, both based in Chicago, released a study that compared Teachers’ Retirement System investment results between 2001 and 2010 with fees paid to external money managers hired to invest our members’ money.

The BGA and CBS 2 reported that during this decade, TRS spent $1.3 billion on fees, yet the average investment rate of return for the decade was 3.7 percent, well below the System’s target of 8.5 percent.

While the numbers are true, the comparison does not provide an accurate picture of TRS investments. It’s like comparing apples and oranges. The real comparison is between fees paid and investment revenue earned. Those statistics tell a different story: Between 2001 and 2010, Teachers’ Retirement System generated $10 in investment revenue for every $1 paid in fees to outside investment managers.

While fees totaled $1.3 billion between 2001 and 2010, investment revenues totaled $10.937 billion.

The BGA arbitrarily chose to study a decade that included an unprecedented world-wide financial downturn in 2008-2009. That crisis, you will recall, caused all large investors, including TRS, to lose money, as well as a lingering recession. Other arbitrary measures of time produce different investment results for TRS against the System’s target return of 8.5 percent:

  • Between 1981 and 2011, investment returns averaged 9.3 percent.

  • Between April of 2009 and March of 2012, investment returns averaged 14.8 percent.

  • Between 2003 and 2007, investment returns averaged 12.64 percent.

In fiscal year 2011, which ended last June, TRS recorded a 23.6 percent rate of return after all fees had been subtracted and generated $7.2 billion in investment income. At the end of March, 2012 total TRS assets stood at $37 billion.

The BGA and CBS 2 report warned that their findings are not good news at a time when TRS is facing a $44 billion unfunded liability and the very real prospect that the General Assembly will not appropriate to TRS its entire annual payment as required by law. The truth, however, is that without strong investment returns over the last 30 years, and especially in the last two years, the TRS financial picture would be much worse. You cannot properly analyze TRS finances in 2012 using only statistics from 2001 to 2010.

The $44 billion TRS unfunded liability was caused by legislators not appropriating sufficient funds to TRS every year for the last 60 years.

All of us at TRS believe it is helpful to our members that we share this information, as well as our responses to the questions asked by the BGA and CBS 2 over the last six months. More information is available on our Web site at http://trs.illinois.gov.

Member Services Division
Teachers' Retirement System of the State of Illinois