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Mass. pension fund posts slim 3.9 percent fiscal 2015 gain

The Massachusetts state pension fund posted a 3.9 percent investment gain for the fiscal year ended June 30, outperforming some of its peers but delivering a far smaller return than in recent years.

The pension fund added $2.4 billion in value, ending the year with assets of $61.2 billion. It paid out $1.5 billion in retirement benefits.

The slim return for fiscal 2015 followed two years of double-digit gains, including last year’s 17.6 percent return. Michael Trotsky, the fund’s executive director and investment chief, said turmoil in overseas markets and the threat of higher US interest rates were drags on the latest yearly results.

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“With so much turmoil around the world and an economy that has yet to take off, really, this was expected — and we’ve been preparing for it,” Trotsky said.

Trotsky took over the pension fund for public workers and teachers in 2010 following steep losses during the financial crisis, with a mandate to reduce risk.

For instance, managers have cut the pension fund’s exposure to stocks from 49 percent of its assets five years ago to 43 percent today, with a goal or trimming it further to 40 percent.

Trotsky said he doesn’t expect a major stock market correction in the near future, but he believes that seven years into the economic expansion, stocks are acting as if they are in a “peak zone.”

Massachusetts performed slightly better than the median 3.6 percent return for other large US public pension funds tracked by the Wilshire Trust Universe Comparison Service. California’s public retirement fund, the nation’s largest, posted a 2.4 percent gain for the year.

Over time, the Massachusetts fund’s annual goal is to earn 7.75 percent, the level it must hit to avoid needing more cash contributions from the state. According to the most recent calculation, the state pension has funding for 61.2 percent of its long-term obligations.

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While turbulence in Greece, China, Puerto Rico, and the Middle East have hurt emerging market and international stocks, alternative investments produced stronger results. Private equity fared best, with a 15.6 percent gain for the year, followed by real estate, which rose nearly 12 percent.

“Private equity and real estate continue to drive the bus,’’ Trotsky said.

The fund’s five-year annualized return on Trotsky’s watch is 11 percent, better than the 8.5 percent the fund would have produced in a hypothetical portfolio with 60 percent of its money in a global stock index and 40 percent in a mainstream bond index. So far, it’s nearly identical to the median nationally for public funds with more than $5 billion in assets, but not all funds have reported yet.

In reality, the fund is far more complex than a mix of stocks and bonds, with a goal of diversifying to improve performance and reduce risk. Like most other public pension funds, it also invests in hedge funds, timber and natural resources, private equity funds, and real estate.

Emerging-market stocks were a disappointment for the fiscal year, falling 5.9 percent. But in recent months, foreign stocks have been performing better than US equities, Trotsky said.


Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.