Key Points
- Dramatic Turnaround: Connecticut’s state pension fund, once one of the worst-funded in the nation, has doubled its assets from approximately $30 billion to $63 billion over the last decade, moving from 30% to 60% funded.
- Strategic Investing: State Treasurer Erick Russell credits a highly diversified, global investment portfolio—including private equity, real assets, and infrastructure—for the fund’s recent success, consistently beating its 6.9% assumed rate of return.
- History of Mismanagement: The fund’s previous poor health was due to nearly 70 years of the state failing to make its required annual contributions, a practice that ended around 2011.
- Controversial New Proposal: A new idea is being explored to invest a portion of the pension funds into the WNBA’s Connecticut Sun team to ensure it remains in the state, a move that is legal but has drawn some political criticism.
- Fiduciary Duty First: Treasurer Russell emphasizes that any potential investment in the sports team would only proceed if it guarantees a strong return for the state’s pensioners, whose financial interests remain his top priority.
A Remarkable Financial Recovery
After decades of fiscal mismanagement that left it teetering on the edge of a crisis, Connecticut’s state employee pension fund has undergone a remarkable transformation. Once languishing as one of the most underfunded public pensions in the United States, it has surged in value over the past decade, a recovery steered by a disciplined and diversified investment strategy under the leadership of State Treasurer Erick Russell.
The fund, which was only about 30% funded a decade ago, now stands at approximately 60% funded, with assets under management soaring from $30 billion to roughly $63 billion. This turnaround is not just a story of market gains but a testament to a fundamental shift in the state’s fiscal discipline.
Escaping a 70-Year-Old Problem
In a recent interview, Treasurer Russell explained the historical context of the fund’s previous struggles. “We as a state went about 70 years without properly funding our pensions,” Russell stated. “We were not making those required contributions, and so it left us with a really big unfunded liability.”
That practice of diverting money meant for the pension to other state needs created a massive hole that handicapped the fund’s ability to invest strategically. However, since 2011, the state has consistently made its required payments. Furthermore, recent budget surpluses have allowed for significant additional contributions, with over $10 billion in extra payments made to pay down the unfunded liability by the end of this fiscal year.
The Strategy Behind the Success
The key to the fund’s recent explosive growth lies in its investment philosophy. Treasurer Russell has championed a globally diversified portfolio that spreads risk across numerous asset classes. Rather than focusing solely on traditional U.S. equities like the S&P 500, the fund invests in private credit, private equity, real assets, infrastructure, and natural resources.
“As long-term investors, we want to make sure that we are putting our state employees and teachers and retirees in the best spot over a long period of time,” Russell explained. This approach has paid off handsomely. The fund has consistently outperformed its 6.9% assumed rate of return, achieving returns of 11.5% in the prior fiscal year and over 10% this year, adding billions of dollars to the pension’s assets. For this last year alone, strong returns added an impressive $5.9 billion to the fund.
A Bold New Pitch: Investing in the Connecticut Sun
With the pension fund now on solid footing, a new and unconventional investment opportunity has emerged: using pension funds to help keep the WNBA’s Connecticut Sun in the state. The team, which the Mohegan Tribe bought for $10 million two decades ago, is now reportedly receiving offers as high as $300 million, creating a risk that it could be sold and relocated.
Treasurer Russell confirmed that his office is exploring the possibility of an investment. “It’s certainly legal,” he noted, adding that many other states invest in funds that hold stakes in sports teams. He sees significant potential in the rapid growth of women’s sports and the WNBA.
Balancing Profit and Public Interest
Despite the intriguing possibility, Russell was firm that his primary responsibility is to the state’s pensioners. “Anything from my perspective, that we are talking about in terms of an investment is going to be focused on what is in the best interest of pensioners,” he asserted. “If there is a way for us to make a really great investment on behalf of pensioners that also benefits the Connecticut Sun staying here, it’s certainly something we’re open to.”
The proposal has received pushback from some Republican leaders who argue that the focus should remain solely on closing the remaining funding gap. However, Russell maintains that his team is committed to finding strong opportunities, and the conversations regarding the WNBA team are still in their very early stages, pending negotiations between the state, the league, and the team’s current owners. The ultimate decision will hinge on whether the numbers add up to a secure and profitable investment for Connecticut’s retirees.
Image Referance: https://www.nbcconnecticut.com/news/politics/face-the-facts/face-the-facts-investments-state-pension-fund/3637522/
