WRS News Online

What Does it Mean to be a Long-Term Investor?

by Michael Williamson, State of Wisconsin Investment Board Executive Director

Michael Williamson
Michael Williamson

In June a majority of voters in the United Kingdom chose to leave the European Union. The outcome of the vote was shocking to many. In the days immediately following the vote, world stock markets were reeling from the news as investors and analysts tried to determine what the EU will look like without the U.K. But by July, major U.S. stock indexes had set record intraday highs, with the Nasdaq wiping out its losses for the year.

The "Brexit" vote is just one of many issues that has added volatility to what is already being describedas a "low-return environment" for investors. Events like Brexit add to the constant market reminders that it will be difficult to consistently reach the Wisconsin Retirement System's assumed rate of return of 7.2% over the short term. This has led many to ask if we should consider changing our investment strategy.

For years I have talked about SWIB being a long-term investor. Staying the course and believing in the well-thought-out investment strategy we have put in place over the long-term has served the system well. The WRS remains fully funded and able to meet the annuity promises made to current retirees. We believe this strategy will also help us meet our goal of generating returns over the long-term to ensure the same holds true for future WRS members.

I recently read comments from Tom Lee, executive director of the New York State Teachers' Retirement System, that I think sum up what it means to be a long-term investor. Tom said during turbulent times, he hears from participants that urge him to consider changing the system's investment strategy to protect the pension in the short term. In response, he asks them if they would sell their house if the roof leaked or their car if it got a flat tire. The answer is "of course not". The same is true for investing. Missing the assumed rate of return for a few years does not mean the strategy that has been put in place is no longer working.

Having a strong long-term investment strategy does not, however, mean keeping that strategy in a vacuum. Over the long term, there have been and will continue to be modifications that address current market trends. Over the past 30 years, the WRS has weathered a number of shocks to the world's financial systems. From the bursting of the tech bubble, to military conflicts overseas, to the Great Recession, these events have put our long-term investment strategy to the test. And SWIB has responded. We have reduced our exposure to stocks, increased our allocation to low-risk assets such as bonds, real estate holdings, hedge funds and private equity, and we have steadily moved to managing more assets internally. In the end, the WRS remains a strong public pension system, something from which the entire state benefits.

No one can predict when the next "Brexit" that will increase market uncertainty will hit. But, as history has shown, the WRS is well positioned to take on whatever may come, with its carefully-designed and expertly-implemented long-term investment strategy.