Also on the Legislative Executive Board’s agenda tomorrow is a report and FY2019 budget request from the South Dakota Investment Council, the folks who manage the South Dakota Retirement System pension fund and other far smaller state trust funds.
In FY2017, the Legislature budgeted $16.5 million for the Investment Council, all which comes from its own funds, not the stage general fund. The Investment Council spent only $10.2 million, with most of the surplus in unused investment performance incentives. 31.25 FTEs received $4.83 million in salaries, and average of $155,000 per council employee. Since 2013, the council has set a salary target of 70% of cost-of-living-adjusted median industry pay for investment experts, which isn’t enough to recruit top talent but gives us a shot at cultivating and keeping talented local analysts.
These underpaid experts got the job done for South Dakota’s pensioners in FY2017, delivering South Dakota Retirement System returns of 13.81%, beating the 9.05% four-year annualized return and the recession-sandbagged 6.47% ten-year annualized return. A dollar invested in 1973 in the state pension plans (the Legislature formed SDRS by consolidating six retirement plans in 1974) is now worth almost $80.
SDRS now holds $11.632 billion in assets. The Investment Council holds a total of $14.207 billion in assets. Management fees eat up 0.34% of that amount, compared to a benchmark of 0.68%. Just by keeping management fees at half the going rate, the Investment Council saves us $48 million a year. That annual efficiency alone would cover Investment Council salaries for almost nine years.
The Legislature budgeted the Investment Council a 4.7% pay increase this year. The Investment Council is asking for a 3.68% increase in pay in FY2019.