WRS News Online

SWIB Remains a Low-Cost Manager

Internal and External Assets and Costs

Managing the Wisconsin Retirement System trust funds involves more than determining a good investment strategy. Developing a disciplined, prudent, and innovative investment strategy is what we do to mitigate against losses, keep contribution rates stable, and generate reasonable returns. In addition, the State of Wisconsin Investment Board's cost optimization efforts help ensure the WRS can meet its obligations today and in the future.

"Our cost optimization is one reason the WRS remains financially strong," SWIB Executive Director Rick Smirl said. "Our internal management of a majority of the trust funds, combined with other cost – saving initiatives and our sophisticated investment strategy, helps fuel one of the best-funded public pension systems in the country."

SWIB is a low-cost public pension fund manager when compared to other large U.S. public pension funds, according to CEM Benchmarking, an independent cost effectiveness consultant. SWIB's cost of 43 cents per $100 is below the peer median of 56 cents per $100 under management, as of December 31, 2016, the most recent peer comparison data available from CEM. SWIB is able to keep its costs below the peer median in part because of the use of more internal management, a lower allocation to higher cost assets, and paying less for external management.

Using more of its own staff to manage assets, investing in fewer higher costs assets, and negotiating lower external fees represented a total savings of approximately $110 million in 2016. A majority of that savings, approximately $71.8 million, came from SWIB managing more assets internally — approximately 62% of the assets — and passively — approximately 38% of the assets, than its peers.

Maintaining a lower-cost internal management program requires the ability to attract, hire, and retain qualified staff. Over the past few years SWIB's Board of Trustees have worked with a consultant to manage an incentive compensation program that motivates staff to seek high returns at reasonable costs and controlled levels of risk, which aligns with the interest of the WRS.

Reducing costs has contributed to the value added above market returns to the trust funds, which, after costs, has been significant: approximately $759 million over the past five years, ending December 31, 2017.

"We will continue to protect and grow the assets that more than 622,000 participants and 1,500 employers of the WRS count on for a more secure financial future," Smirl said.