Washington posts $2.9bn first quarter loss amid market volatility

The $82bn Washington State Investment Board, known for its bullish stance on alternatives, had a minus two percent first quarter return on its private equity portfolio, while real estate underperformed against its benchmark. Executive Director Joseph Dear says ‘we’re in this asset class to stay’.

The Washington State Investment Board, one of the strongest supporters of alternative assets among US institutional investors, has posted a $2.9 billion (€1.8 billion) first quarter loss, including a minus two percent return on its private equity portfolio.

Real estate was one of the fund’s few positively performing asset classes, but with a 2.74 percent rate of return it still underperformed its benchmark of 3.5 percent. The fund allocates $8.9 billion to real estate.

“We have been looking at fabulous returns for the past three or four years, expecting that things would change, and things have changed,” WSIB executive director Joseph Dear told PERE’s sister website, PEO. 

The WSIB’s total assets under management fell more than three percent to $81.9 billion from an all-time peak of $84.8 billion in the fourth quarter of last year.

The $2.9 billion drop, the WSIB’s first quarterly decline in total assets since the 2002/03 recession, primarily reflects the poor performance of global public markets over the last few months. WSIB’s global equity portfolio returned -9.9 percent, matching the asset class’ benchmark.

The WSIB’s $13.7 billion private equity portfolio returned -1.9 percent, outperforming its -2.10 percent benchmark but revealing a marked decline in the fund’s year-to-year portfolio performance. Last year, WSIB’s private equity investments yielded a return rate of 28.9 percent.

During Dear’s tenure with the fund, the WSIB has been a firm supporter of alternative investment vehicles, turning industry heads last summer when it announced a 25 percent target allocation to private equity. 

“We’ve had a longtime commitment to private equity, we’re in this asset class to stay and we have the patience to ride out periods of underperformance,” Dear said.

Both the WSIB’s private equity and real estate return figures were calculated for the fourth quarter of 2007, owing to a one quarter time-lag in reporting those asset classes.  

WSIB is not the only major public pension to report significant losses for the first quarter of the year. Earlier this month, the $241 billion California Public Employees’ Retirement system posted a $12.1 billion decline in assets under management, also largely attributed to volatility in global public equities markets.

In related news, earlier this month WSIB’s board of directors approved a $400 million commitment to the real estate fund Principal Enterprise Capital Holdings and $400 million to Alinda Infrastructure Fund II.