Pension Reserves Investment Trust

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Pension Reserves Investment Trust Introduction In this paper Massachusetts Pension Reserves Investment Trust (PRIT) is analyzed and recommendations are given on how funds of the trust should be allocated in order to maximize the returns while minimizing the risk. Currently, Pension Reserves Investment Management Board (PRIM) aims to “reasonably exceed” its actuarial rate of 8.25%. However, with the right portfolio allocation it is possible to achieve better performance than 8.25% return. Target Rate The PRIM Board believes that, by the year 2040, PRIT will grow to an amount sufficient to meet then-existing pension obligation of the Commonwealth, which means that the funded ratio of PRIT will be equal to 1 at that time. The…show more content…
1. According to the report on the historical performance of the PRIT portfolio from 2009 to 2011, the main return driver is the Global Equity sector which has a 3-year average return of 13.22%. Even though equity market has the highest volatility, we think it’s reasonable to hold 40% allocation in this sector due to its actual allocation and its good historical performance. 2. According to table presented below, the Core Fixed Income sector has the lowest volatility. This is why the Core Fixed Income sector got the second highest weight which is 25% of the whole recommended portfolio. The Core Fixed Income return is more stable and 25% allocation in this sector will guarantee a downside risk protection. Because of the economy stimulation policy and the continuing global deleveraging, the interest rate should stay low in short-run. This is why the fixed income return should be a little lower than the last 3-year average and it will be around 5%. 3. Due to best historical performance, 15% of the fund should be allocated to Value Fixed Income which is the third highest weight in the portfolio recommended above. 4. According to historical reports on the fund, the rest four sectors made less contribution to this portfolio compared with the three sectors we mentioned above. This why only 5% weight was given to each of Private Equity, Real Estate, Natural Resource and Hedge Fund sectors. | 2010 | 2011 | 2012 | Average
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