WRS News Online

SWIB Remains a Low-Cost Pension Fund Manager

The State of Wisconsin Investment Board’s decisions to increase internal and passive management, negotiate lower fees for external managers and invest in a mix of low-cost assets that produce favorable returns have added $171.5 million above market returns, after costs are subtracted, over the past year and $1.8 billion over the past five years to the Wisconsin Retirement System. These decisions also resulted in SWIB’s costs being $175 million less than its peers.

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SWIB's internal management of assets has added almost $1.8 billion above market returns to the WRS over the past five years.That is more than external management and private markets combined have added to the WRS.

Independent reports from Callan Associates, Inc., and CEM Benchmarking, Inc., found that SWIB, when compared to its peers, continues to be a low-cost pension fund manager that produces favorable results. SWIB’s management of the WRS provides a significant financial benefit to the retirement system and that its mix of investments, diversification and long-term investment strategy allow for favorable returns, according to the reports.

“At SWIB, we focus on three things – making money, managing risk and controlling cost,” SWIB Executive Director Michael Williamson said. “Every dollar we save in the cost of managing the WRS is just as important as a dollar we make in returns and these two firms report that we are doing well in both areas.”

CEM, an independent provider of objective and actionable benchmarking information for pension plans, found SWIB’s cost of management to be lower than its peers given a similar mix of assets. The lower costs are a result of decisions made by SWIB’s Board of Trustees to, when possible, use less expensive internal and passive management, and to allocate investments to less expensive asset classes.

At A Glance Graphic
SWIB manages more assets internally and passively than peers.

SWIB uses more internal and passive management and a lower-cost mix of assets than other large public pension funds, according to CEM. SWIB manages 54% of assets internally, compared to the peer average of 30%, and 38% of assets are managed passively, compared to the peer average of 23%. By using qualified staff to manage the assets of the WRS, SWIB lowers costs substantially while maintaining strong performance. Without qualified staff to manage the assets, SWIB would have to contract with expensive external managers to manage the retirement funds. In addition to savings from managing more assets internally, CEM found that SWIB pays less than its peers for the external management it does use. Taken together, these efforts resulted in SWIB paying $175 million less than comparable public pension systems in the United States in 2013.

In addition to being a low cost investor, SWIB’s mix of assets has performed well. Callan Associates, Inc., a firm that provides research, education, decision support and advice to institutional investors, found that SWIB’s investment strategy, when compared to its peers, has performed well and exceeded its benchmarks for the last five years.