Illinois Beats Investment Return Goals Amid Pension Stalemate

Illinois is beating pension investment goals despite a long-running stalemate over restructuring its retirement systems, according to the executive director of the Illinois State Board of Investment.

William Atwood, whose board oversees three funds covering state employees, judges and General Assembly members, said today they earned 14.6 percent through the year ending Sept. 30, exceeding the goal of 11.8 percent. The funds have the majority of their assets in equities. The Standard & Poor’s 500 Index climbed 17 percent in the 12 months through Sept. 30.

“Our portfolio is going to live or die by equity markets,” Atwood said in an interview at the Bloomberg News bureau in Chicago. “Barring a calamity in December, our calendar year should be every bit as strong as our fiscal year number was.”

Atwood spoke as lawmakers plan to return next month to Springfield, the capital, to consider restructuring underfunded pensions that have led to repeated credit downgrades for the lowest-rated U.S. state. Legislators have failed to enact a fix at least five times in the past 15 months.

The Illinois State Board of Investment is the fiduciary for $13.9 billion in pension assets and $3.6 billion in defined contribution assets. They have 30 percent of their assets in domestic equity, 10 percent in hedged equity, 20 percent in international equity and 5 percent in private equity, Atwood said.

Making Money

“Over the long term, equities are the only place to be, whether it’s securities or private equity or equity real estate,” Atwood said. “You have to be the owner of assets to create wealth.”

Illinois’s five pension systems had 43 percent of assets needed to cover obligations in fiscal 2011, the lowest ratio among states, data compiled by Bloomberg show. Democratic Governor Pat Quinn, 64, has said devising a solution “has confounded legislatures and governors for 70 years.”

Atwood said he is “cautiously optimistic, reasonably optimistic that by the end of the year or shortly after there’ll be a piece of legislation the governor can sign.”

States nationwide have lost ground for five straight years in socking away assets to pay retired workers, data compiled by Bloomberg show. The nationwide median funding ratio of 69 percent is down from almost 83 percent in 2007, according to the data.

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