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Pension fund official sees markets in ‘late stage of the boom’


By Gintautas Dumcius


BOSTON — The head of the state pension fund on Tuesday expressed concern about turbulent markets, but said that the fund is prepared for the volatility.

October and November brought “strong” market performances, but the S&P 500 experienced a 1.4 percent decline in September, said Michael Trotsky, the executive director of the Pension Reserves Investment Management (PRIM) board.

“September was particularly alarming. A 1.4 percent decline really masks the volatility in the month,” Trotsky told board members.

Referring to a Chinese company’s initial public offering, Trotsky said, “In the 14 days after the Alibaba IPO, on September 19, the Dow Jones Industrial Average, just as an example, shed 620 points in 14 trading days. Six hundred and twenty points.”

Trotsky added: “We’re still seeing many crosscurrents in economic news, and this causes confusion in the markets, and of course confusion causes volatility, some of the volatility we’ve seen already and we expect to see some more.”

The Pension Reserve Investment Trust’s balance was $60.2 billion as of Oct. 31, up 9.4 percent over the year and reflecting an investment gain of $5.3 billion.

“We think this signals the late stage of the boom that we’ve been in for the past five years and we have prepared for,” Trotsky said. “If you remember, we prepared the portfolio by reducing equities and increasing our exposure to long duration treasuries, as insurance, for cooling environments.”

The fund’s gains came from private equity funds, which were up almost 25 percent; real estate, up 12 percent; and timber, which is up over 7 percent, Trotsky said.

“Net outflows to pay benefits for the one-year ended October 31, 2014 were approximately $1.7 billion,” according to Trotsky’s report to the board.

Trotsky added in his report that the PRIM board’s investment team has started its annual asset allocation review, and they will share the research findings and recommendations with the board soon.

Tuesday’s PRIM board meeting was Treasurer Steve Grossman’s last as chair, since he is stepping down in January and Treasurer-elect Deb Goldberg is taking the reins of the treasury.

Shortly after the meeting started, Trotsky handed Grossman an ice cream bowl with the PRIM logo and Grossman’s name engraved on it. He also handed him a gift certificate to Toscanini’s, an ice cream shop in Cambridge.