I generally speak highly of the South Dakota Investment Council and its longtime chief stock-picker Matt Clark. I’d be inclined to speak well again of SDIC”s management of state pensions and trust funds, given a billion-dollar FY 2026 uptick in the total portfolio value after a lackluster FY 2025. But the 10.60% return on just the South Dakota Retirement System fund that the SDIC reported to the Legislative Executive Board Wednesday doesn’t look that hot compared to the 17.72% capital markets benchmark return for the same period:
“Underperformance due to cautious asset allocation and private investments,” says SDIC at the top of that slide. But this is the seventh year in the last ten that SDIC’s cautious allocation has brought in less money than the market benchmark, the fourth straight year of falling behind benchmark, and the third straight year that the difference between the market benchmark and SDIC’s performance has been more than seven percentage points:
To sustain its aura of awesomeness before the legislators who set its budget, SDIC has to resort to emphasizing that, over its entire 53-year history, it still has a better betting average than investors at large:
I understand the desire to focus everyone’s attention on the first two lines of the first table, but the long tail of the first chart and the whole second table and chart catch my eye and make me feel like we’re talking to Grandpa about his driving: I know, Grandpa, you’ve been driving for 53 years and you’ve never had a wreck, but the last ten years, you’ve been drifting into the rumble strips an awful lot, so let’s talk.
Clark told legislators last Session that this underperformance is by design as he keeps South Dakota’s pension money out of artificial intelligence hype. I called Clark’s caution “sensible” last spring, but as I look at the charts above, I’m rethinking that judgment in light of my own investment bets. I share Clark’s expectation of an AI bubble-pop, but there’s still a lot of money to be made on semiconductors and other hardware, which everybody is going to keep using more of whether it’s for chatbots or just plain old computers and phones refrigerators. Keep up with the market, invest in durable tech, and get back to matching the market’s performance!