Houston Firefighters' Relief and Retirement Fund earns 12% in 2017 fiscal year, passes $4 billion in assets
The Houston Firefighters' Relief and Retirement Fund combined risk-minimization with macro- and microeconomic diversification strategies to achieve a 12 percent return in its 2017 fiscal year which ended June 30.
HFRRF earned $439,444,928 on its beginning net position of $3.729 billion on July 1, 2016. The pension ended FY 2017 with $4.025 billion, the first time in its 80-year history that it has exceeded the $4 billion marker.
"The recovery effort from Hurricane Harvey has been very difficult for our firefighters and all of Houston, so these investment return figures provide a ray of relief and hope for the future,” says David Keller, chairman of the HFRRF Board of Trustees. “Certainly pension fund performance is not the first thing on people's minds right now, but we are proud to report solid returns that first and foremost will provide for firefighters in retirement and their families in case of death or disability in the line of duty."
HFRRF Chief Investment Officer Ajit Singh says he and the investment committee brought a number of changes together to achieve the 12 percent return.
“Our ongoing strategy is to bring the latest academic research in investment management into the portfolio. Our investment return reflects improvements we made in risk-adjusted performance,” Singh says. “And we successfully reduced management costs by over 50 percent.”
Studies confirm that asset allocation and diversification across risk factors are primary drivers of the variabilities of returns, he adds.
"We worked hard in 2017, and will continue that work in 2018, to take the risk factors diversification concept to the next level," Singh says. "Traditional diversification can still cause over-exposure and add risk. By improving diversification across different style risk factors and linking the risk allocation with macroeconomic risk factors, we protect our members' assets against many different sources of potential downturns.”
Singh noted how, in 2017, the HFRRF's Global Tactical Asset Allocation process and Market Risk Indicators, or MRI, provided leading signals that worked particularly well during the uncertainty before and after European elections.
Singh credited the HFRRF investment committee, comprised of HFRRF Board members, with becoming involved in understanding and approving a conservative strategy.
"To describe our strategy in one phrase, it is ‘Winning by not losing,'" he says. "Over the long term, if we can avoid the negative compounding effects of lower draw-downs in bad economic times we add substantial value to the portfolio when better times resume. We are not swinging for home runs. There are too many strike-outs. We instead strive for consistent performance over the long term,” Singh said. “Our work is not finished. We will continue to bring leading academic research in the portfolio, continue to focus on improving risk-adjusted returns, risk factor investment techniques while reducing the management costs.”
Singh also noted how the fund generated positive alpha of 308 basis points (bps), compared to three years alpha of negative 253 bps. The alpha is a performance measure adjusted for market risk, measured by Beta, which was 0.91 compared to three-year Beta of 1.36. The Information Ratio, another measure of risk-adjusted performance, adjusting for deviation from the benchmark, was 1.72 for the FY 17, compared to three years of negative 0.40.
Through the end of its 2017 fiscal year, HFRRF achieved the unofficial title of having the best-funded ratio (89.4 percent) of all of Texas' state and local pension funds with more than $1 billion in assets under management, according to Pension Review Board data. Certain actuarial assumptions mandated by the state with implementation of SB 2190 will decrease that ratio in future PRB reports.
“Being good, responsible stewards of the Fund is our top priority,” says the fund's board chairman, Keller. “We will continue to work diligently for the firefighters who serve the people of Houston in their most difficult moments.”
HFRRF serves 7,275 active and retired members and has approximately $4.02 billion in net assets. The American Investment Council Named HFRRF number five of the Top 10 Pension Funds by Private Equity Returns.