WSIB posts $2.9bn first quarter loss amid market volatility

The $82bn Washington State Investment Board, known for its bullish stance on alternatives, had a -2 percent first quarter return on its private equity portfolio, slightly outperforming its benchmark. Executive Director Joseph Dear tells PEO, ‘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 -2 percent return on its private equity portfolio.

“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 PEO.  

We’re in this asset class to stay and we have the patience to ride out periods of underperformance.

Joseph Dear

The WSIB’s total assets under management fell more than 3 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 2002-2003 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 

Joseph Dear

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.  

According to the quarterly report, 62 percent of WSIB’s private equity commitments are invested in buyout funds, 21.2 percent in international funds, and 10.3 percent in venture capital funds.

Dear said he did not foresee any shift in allocation targets to private equity or strategy shifts within the private equity portfolio.

 “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,” he said.

Although the fund’s $8.9 billion real estate allocation was one of its few positively performing asset classes, its 2.74 percent rate of return still underperformed its benchmark of 3.5 percent.

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 slew of alternative commitments, including $400 million to First Reserve’s $12 billion buyout fund; $400 million to Blackstone Capital Partners VI, a $20 billion buyout fund; $300 million to Fortress Investment VI; and $50 million to Evergreen Pacific Partners’ second middle-market buyout fund.

On the real estate  and infrastructure side, the board approved a $400 million investment to Principal Enterprise Capital Holdings and $400 million to Alinda Infrastructure Fund II.