Investment Performance at AFM-EPF Consistently Falls Short

Many of you have seen the trustees’ response to our recent article concerning investment performance at our pension plan. Their attempt to defend their investment record sent us back to the documents, and the situation is actually worse than we thought. Recent investment performance at the AFM-EPF is currently well below the trustees’ own expectations, below the average of peer plans, and below the performance of simple index funds.

Here’s the story from the trustees’ own documents: In the Fall of 2017, the trustees brought in a new investment firm, Cambridge Associates, to oversee our investment portfolio. When Cambridge Associates took over, the trustees, in consultation with Cambridge, set a long-term annual return target of6.8%. (Presentation, December 18, 2017, page 5.) This target was considerably lower than that of peer funds, which was 8.2%. (id., Page 5)

Cambridge and the trustees did not even meet their own overall investment return goal. Since October 1, 2017 when Cambridge took over as the investment manager, the annualized return has been 4.5%. (March 31, 2019 Investment Report, page 3)

Our investment portfolio is also under-performing external benchmarks. Since October 1, 2017, when Cambridge took over, the annualized return has been 4.5%. Compare that to the annualized return of the S&P 500 which since October 1, 2017 was 6.725%. (With dividends reinvested, the S&P returned 8.76% since that time.) A typical portfolio invested in index funds of 80% stocks and 20% bonds would have returned approximately 5.75% in that time period.

Our investment performance also compares poorly with other multiemployer plans. Contained in the trustees’ own documents is a comparison of our plan to 38 other multiemployer plans that have assets of $1 billion and up. For calendar 2018, our pension plan investment performance was below the peer average. (Investment Performance Report, February, 2019, page 16.)

This raises the question of how the trustees are measuring investment performance, and how honest they are being with themselves, let alone with the plan participants. Let’s take fiscal year 2018 as an example. The trustees originally set a target of 6.62% as the investment goal for fiscal 2018. (Presentation, December 18, 2017, page 22.) Later in the fiscal year, when it looked like that goal would not be met, they lowered it to 5.11%. (Presentation, February 12, 2019, page 4.)Just to hedge their bet, they also set an “alternate case” return target of 0.66%. (Id., page 4). So, when the actual 2018 results ended up being 2.6%, the trustees could fool themselves into thinking that things didn’t look so bad. Of course, if you keep lowering expectations, you’ll never be disappointed.

Finally, we question the worth of the March 31, 2019 investment performance data which the trustees recently trotted out. All the data is marked “Preliminary” except for one small category (fixed income). For over 22% of the portfolio, there is no performance data at all (relating to private equity, real estate and private credit). (March 31, 2019 Investment Performance Report, page 3)

We need to ask the question: do our trustees know what they are doing? Do they have the ability to set investment goals, and really hold investment managers to account? As we pointed out in a recent article,a Federal judge has repeatedly questioned whether the trustees have this capability. The trustees and their supporters at the recent AFM convention pronounced their overall investment track record as very good, which is contrary to the clear evidence that they have one of the worst performing investment portfolios in the multiemployer universe. Which leads us to the old maxim: if you want to fix a problem, first you need to acknowledge the problem.