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Legacy portfolio weakens returns for New Hampshire

  • Legacy portfolio “depressed” return from alternatives
  • Alternatives portfolio nets 4.7 pct in FY 2015
  • Pre-crisis portfolio netting just 1.4 pct

The New Hampshire Retirement System’s portfolio of pre-Global Financial Crisis funds has dragged down its alternative platform’s annual return to the low single digits.

The $7.5 billion pension’s alternatives portfolio — which includes a mix of private equity, private debt and absolute return strategies — generated a 4.7 percent return in the fiscal year ended June 30, 2015, according to its annual report. The portfolio underperformed its weighted S&P 500-plus 5 percent benchmark by more than 8 percentage points.

The alternatives portfolio also failed to crack double digits on a three-year, five-year and 10-year annualized basis, according to the report.

“The low-single-digit return on alternative assets, primarily private debt and private equity, continue to be depressed by legacy investments, primarily in venture capital,” the annual report said. New Hampshire’s legacy portfolio of pre-2009 funds netted just 1.4 percent.

The portfolio’s performance improves significantly when the legacy portfolio is excluded. New Hampshire committed roughly $1.3 billion to alternative funds since 2009. Those investments generated 12.3 percent for the five years ended June 30, 2015.

Many of those investments have yet to generate meaningful returns, however. Roughly two-thirds of the $1.3 billion went to 2014 and 2015 vintages.

New Hampshire committed $485 million across five private equity funds and three private debt funds over the previous fiscal year. Recent commitments include a $150 million allocation to BlackRock’s latest private opportunities fund and a $50 million commitment to Coller Capital’s seventh flagship secondaries vehicle.

It is not clear how much New Hampshire plans to allocate to private equity in the 2015-2016 fiscal year. Spokesman Marty Karlon did not respond to a request for comment as of press time.

New Hampshire had a target allocation of 9.8 percent for alternative assets as of June 30, according to retirement system financial statements. The pension was 5.2 percentage points short of its target allocation as of the same date.

New Hampshire’s overall investment portfolio failed to clear its 7.75 percent assumed long-term rate of return in the 2015 fiscal year, netting 3.5 percent through June 30. The pension’s total portfolio netted an 11.7 percent three-year annualized return and an 11.6 percent five-year annualized return, according to its annual report.

Action Item: To read New Hampshire’s annual report, visit http://bit.ly/1IQVIVy