Study Shows STRS Ohio Has High Investment Returns, Low Costs Compared to Peer Retirement Systems
CEM Benchmarking, a leading global research company, presented the results of its 2015 investment benchmarking study to the board. The report compared investment data for the five-year period ending from 17 large U.S. public fund sponsors. Results of the study showed STRS Ohio ranked second best in the peer group for lowest investment costs. STRS Ohio’s strategy of using internal investment managers for about 71% of the system’s assets was the primary reason for its low overall costs. The report stated that STRS Ohio saved about $102 million in 2015 by using the internal management approach. The savings is based on the peer group’s median external management costs.
The report also provided performance data and showed that STRS Ohio’s five-year total net return of 8.3% was in the top 25% of CEM’s U.S. public fund universe. This is based on calendar year results. The five-year return exceeds STRS Ohio’s assumed rate of return of 7.75%. CEM said STRS Ohio’s strong performance was due largely to its asset mix, which has a higher weighting in U.S. stocks and a lower weighting in fixed income than the peer group.
What About VTI in the Same Period?
In the period Jan 1, 2011 to December 31, 2015, the price of VTI went from $64.93 per share to $104.30. That is a 10%* annualized net return for a zero investment cost!.
Note that STRS saved $102 million in 2015 using internal investment managers … but as we can see the internal managers were not even able to match what a simple investment in VTI would have done.
* 64.93 x 1.10^5 = 104.57.