Asset Allocation:Cook County
- Build a model to simulate the solvency of the pension fund through 2040. Use the market value of the fund at the end of 2016 as the starting point for your simulation. Next, simulate the market value of the fund through the end of 2017. To do so, you will need to account for:
a.Deductions from the pension that will be made in 2017 to pay out benefits to current retirees. To compute 2017 deductions, use the amount of 2016 deductions provided in the case and assume it grows by a constant annual growth rate.
- Contributions that will be made to the fund in 2017. In your projections, separate the supplementary contributions made by the County from required contributions by the County and its employees. For example, in 2016, total contributions to the fund were $659.3 million (Exhibit 8). Of that $659.3 million, $270.5 million was a supplementary contribution made by Cook County and the remaining $388.8 million were required contributions by the County and its employees.
- Investment returns by the fund. Assume that annual returns are normally distributed. First build your simulator by assuming an arbitrary mean and standard deviation, then adjust the inputs afterwards. In addition, assume that investment returns are realized before any contributions and deductions are made in 2017.
Exhibit 1 Biography of Nickol R. Hackett Nickol R. Hackett serves as the Executive Director and Chief Investment Officer of the $9 billion Cook County Pension Fund of Cook County, Illinois. As Executive Director, Ms. Hackett is charged with directing strategy and policies for the governance and administration of the combined pension funds. Ms. Hackett also has oversight for the funds' investment portfolios. As CIO, she directs portfolio strategy across all asset classes and has served in this capacity since 2008. In 2015 the Cook County Pension Fund was recognized as Small Public Plan of the Year by Institutional Investor. In addition, Ms. Hackett sits on the Deferred Compensation Committee for Cook County, where she reviews policy, investment strategy, and manager selection. Ms. Hackett has over 20 years of expertise in investment management and capital markets with prior experience as Vice President at Bear Stearns and Oppenheimer Capital and as a consultant to retirement plan sponsors. Ms. Hackett earned her MBA in finance and economics from the J. L. Kellogg Graduate School of Management at Northwestern University in Evanston, Illinois, and her BA in history is also from Northwestern. Ms. Hackett serves on the Board of Directors of the CFA Institute of Chicago and is a member of the Council of Institutional Investors. In addition, she is a guest lecturer at the Northwestern University School of Law on investment strategy and hedge funds. She is an avid supporter of civic and cultural engagement throughout Chicago. Ms. Hackett serves as a trustee for the Museum of Contemporary Art Chicago, where she serves on the Investment Committee, and as a member of the Leadership Advisory Council for the Art Institute of Chicago. She also serves on the Community Engagement Committee for the Joffrey Ballet.Exhibit 2 Cook County Pension Fund, Asset Allocation, 2007-2016 70% 50% 40% 30% 20% 10% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -Equities Government Obligations Fixed Income and Corporate Bonds -Alternative Investments -Short Term Securities Source: Cook County Fund Comprehensive Annual Financial Reports (https:/ /www.cookcountypension.com/ about/ annual-financial-reports/), and authors' calculations. Note: Data is for the Cook County Plan only and excludes the Forest Preserve District Fund. Exhibit 3 Total Market Value, Cook County Pension Fund ($ millions), 2007-2016 Market Value Net Investment Return on of Plan Income (Loss) Investment Dec-07 8,069.71 474.76 6.30% Dec-08 6,069.28 (1,864.99) -24.50% Dec-09 6,929.49 1,009.52 18.00% Dec-10 7,574.65 831.25 12.40% Dec-11 7,441.24 80.19 1.20% Dec-12 8,059.94 884.54 12.50% Dec-13 8,927.37 1,175.02 15.10% Dec-14 9,068.40 484.03 5.90% Dec-15 8,643.04 (26.86) -0.10% Dec-16 9,115.66 623.85 7.70% Source: Cook County Fund Comprehensive Annual Financial Reports (https:/ /www.cookcountypension.com/ about/ annual-financial-reports/), and authors' calculations. Note: Data reports the net position of the Cook County Plan only and excludes the Forest Preserve District Fund. Returns on investment are net of fees.\fExhibit 5 Assets under Management of U.S. Private and Public Pension Funds, 1951-2014 20 18 U.S. Pension Assets ($ Trillions) 16 14 12 10 8 195 1954 1957 1960 963 1966 960 197 1975 978 1981 984 1987 190 993 1906 1909 002 110% 2005 2008 2011 014 100% U.S. Pension Assets-to-GDP 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 195 1954 195m 1960 1963 1966 1969 1972 1975 178 1981 1984 1987 190 1903 1996 1909 002 2005 2008 2011 2014Exhibit 6 10 U.S. States with Highest Pension Liabilities as a % of General State Revenue, 2013 Median Mean New Mexico Georgia Illinois New Jersey Wisconsin Oregon California Colorado Ohio Nevada 0% 50% 100% 150% 200% 250% 300% 350% Source: The Pew Charitable Trust, U.S. Census Bureau, and authors' calculations. Exhibit 7 Public Pension Funds Returns, 2008-2016 Year 5th Lower 95th Percentile Quartile Median Upper Quartile Percentile 2008 28.06% -10.60% 5.00% 3.29% 1.21% 2009 -24.70% -20.40% -18.10% -6.60% 22.40% 2010 9.00% 12.11% 13.46% 14.59% 17.80% 2011 -0.50% 6.50% 20.55% 22.36% 24.60% 2012 -0.79% 0.60% 2.13% 11.00% 14.54% 2013 8.60% 11.14% 12.71% 14.30% 18.16% 2014 4.97% 12.13% 16.44% 17.77% 18.90% 2015 -1.67% 1.50% 2.83% 4.00% 5.20% 2016 -1.00% 0.21% 1.20% 5.81% 9.26% Source: Center for Retirement Research at Boston College and authors' calculations. Returns are for defined-benefit plans. Note: Statistics are computed based on reported 1-year investment returns on annual financial reports.Exhibit 8 Cook County Pension Fund, Additions and Deductions by Year, 2011-2016 Additions Year All [1] Excl. Supplement [2] Deductions [3] 2011 373,765,692 373,765,692 589,877,087 2012 363,729,701 363,729,701 632,724,842 2013 359,885,799 359,885,799 671,894,890 2014 366,458,754 366,458,754 714,317,527 2015 373,633,232 373,633,232 777,091,041 2016 659,293,669 388,767,669 816,122,544 Average Annual Growth 15.3% 0.8% 6.7% Median Annual Growth 1.8% 1.8% 6.3% Source: County Employees' and Officer's Annuity and Benefit Fund of Cook County, Comprehensive Annual Financial Report for the Fiscal Years Ended December 31, 2016 and 2015, https://www.cookcountypension.com/ assets/ 1/6/2016_CC_CAFRI.pdf, p- 69. Notes: [1] Additions are the sum of Employer Contributions, Employee Contributions, Annuitant Healthcare Benefit Contributions, and Other, as listed in the 2016 Cook County Comprehensive Annual Financial Report, https://www.cookcountypension.com/about/annual-financial-reports/. [2] Excludes supplementary funding provided to the fund by Cook County. See https://www.cookcountypension.com/assets/1/6/2016_CC_CAFRL.pdf, p. 39 for more details. [3] Deductions correspond to the Total Deductions listed in the 2016 Cook County Comprehensive Annual Financial Report, https://www.cookcountypension.com/about/ annual-financial-reports/. Data is for the Cook County Plan only and excludes the Forest Preserve District Fund
