Nevada PERS the Best and Possibly the Worst: Why?

Nevada’s Public Employees’ Retirement System (PERS) has the best investment strategy among public retirement systems in the country and one of the best records of return. It also has one of the worst records in openness, transparency and accountability. Why?

The past six years’ annual percentage returns have been 9.1, -5.1, 27.3, 8.5, 8.6 and 11.9. That’s a cumulative 73.8 percent growth, or 9.6 percent compounded annually.

Four of the six years were each close to the annual average, and the average of the other two was also very close to it. The odd figures for 2021 and 2022 reflect COVID shutdowns and volatile returns caused by them. In sum, PERS’ annual returns have been not only high, but also quite constant – a good thing, especially for a pension system.

Further, PERS has beaten its benchmark standard five of those years, with a 68.9 percent cumulative reference point, or 9.1 percent compounded annually. Hence, PERS beats its reference benchmark by an average of 51 basis points (0.51 percent) per year. Further, in the past five years, PERS’ actual three, five and 10-year returns beat its benchmark levels in 14 of 15 cases. Overall, an outstanding record.

That’s important, but subject to qualification. The benchmark is a return on a set of reference portfolios other than those employed for each asset class in PERS investment portfolio. The benchmarks are established each year by a fund’s managing board in consultation with its advisors.

Hence, there’s some room for particular benchmarks to be chosen to systematically underestimate expected returns – i.e., for the reference standard to be gamed.

However, there’s no evidence PERS has done so, and its benchmarks look reasonable.

While it’s not possible to say this is the best record among public pension systems (although it well may be) because each system uses different strategies and asset classes, one can say PERS’ strategy is the best.

That’s because it follows the dictates of modern portfolio management theory, which starts by recognizing no one can expect to beat the risk-adjusted returns of the whole investment market on a sustained basis. And one can lose a lot trying to do so. So, the best one can expect to do is to match the overall market returns by buying a slice (more or less, as practical) of the entire market.

Under current Chief Investment Officer Steve Edmundson and his predecessor Ken Lambert PERS has done this to a greater extent than any other public investment system.

The vast majority of its $58 billion 2023 assets is invested in index-type funds. Besides providing the highest expected gross returns, this strategy also minimizes both external fees and internal management costs, giving PERS the lowest investment cost of any public fund and thus the lowest difference between gross and net returns.

Openness, transparency and accountability, however? In 2019 PERS lost a Nevada Supreme Court battle to the Nevada Policy Research Institute on disclosing its employees and retirees’ names, pay and benefits.

Nevada Policy, a public interest think tank, publishes these figures so taxpayers who foot the bill for public employees are reasonably informed as to what they are getting for their money. Likewise, it provides full disclosure to voters and the public interest, to whom PERS is accountable.

PERS has also denied requests by the state controller for information. That information would allow folks to assess forward-looking risks of PERS making up its underfunded status.

That status was caused by excessive benefit levels the legislature passed in earlier, good times. The reason for PERS’ recalcitrance is that its board is captive to a predatory special interest, the 207,000 employees and retirees from which the board is drawn.

Of course, they will be as predatory upon the public interest, voters and taxpayers as legislatures allow them to be.

(This article originally appeared in Nevada Business magazine.)