Audit Assesses Asset Management Practices at SWIB

(Madison) Today, the nonpartisan Legislative Audit Bureau (LAB) released its statutorily required, biennial evaluation of the State of Wisconsin Investment Board (SWIB).  As of December 31, 2006, SWIB managed $88.4 billion in assets.  Two Wisconsin Retirement System funds—the Core Retirement Investment Trust and the Variable Retirement Investment Trust—account for 94.1 percent of all assets managed by SWIB and fund retirement benefits for more than 540,000 current and former state and local government employees.

“I am cognizant that thousands of people depend on SWIB’s good management to ensure their healthy retirement,” said Co-chair Suzanne Jeskewitz (R-Menomonee Falls).  “Overall, I am very pleased with the LAB’s assessment of SWIB’s performance and we will monitor its operations and benchmarks to see that it is meeting or exceeding those goals.”

In its comprehensive report, LAB found that the Core Fund met or exceeded all of its benchmarks at the end of 2005 and 2006.  In December 2006, the Core Fund’s performance ranked in the middle compared to nine other public pension funds.  The Variable Fund met or exceeded all of its benchmarks at the end of 2005, but lagged its three-year and five-year benchmarks at the end of 2006.  The Variable Fund’s performance lags the composite performance of all equity portfolios in both retirement funds managed by SWIB.  In its report, LAB includes a recommendation for SWIB to re-evaluate its policies and procedures for making decisions affecting the Variable Fund’s performance.

SWIB’s private equity and real estate investments provided strong returns during 2005 and 2006.  However, a continuing challenge in evaluating performance for the private markets investments is the establishment of appropriate benchmarks.  For example, LAB recommends that SWIB should regularly analyze its real estate portfolio benchmarks, which do not currently reflect the portfolio’s international investments that contributed to nearly half of its value in 2005 and 2006.

LAB’s report also indicates SWIB has invested $1.4 billion in companies that are headquartered or have a significant presence in Wisconsin.  On December 31, 2006, the Wisconsin private debt portfolio was valued at $325.7 million, which represented loans and investments with 31 different Wisconsin companies.  This portfolio exceeded all its benchmarks at the end of 2005 and 2006.  SWIB has also committed $180.0 million to four venture capital firms through the Wisconsin private equity portfolio, which was established in 2000 to focus on venture capital funds active in Wisconsin and the Midwest.  Of that amount, $77.7 million has been invested, including $32.5 million in Wisconsin companies.  However, this portfolio has significantly underperformed its benchmarks for the periods at the end of 2005 and 2006.  LAB recommends close monitoring of portfolio performance in future years.

“I’m pleased to see LAB’s biennial evaluation of SWIB showed the strength and stability of the investment board over the last two years,” said Senator Jim Sullivan (D-Wauwatosa).  “LAB’s recommendations for SWIB to reevaluate its policies and procedures related to the Variable Fund’s performance are prudent and will be welcomed by SWIB’s new Executive Director, Keith Bozarth.”

Co-chairs Sullivan and Jeskewitz indicate that the Joint Legislative Audit Committee will hold a public hearing on the audit report this fall.  Interested members of the public are invited to testify before the Joint Legislative Audit Committee at that time.  Copies of the audit report may be obtained from LAB’s Web site at or by calling (608) 266-2818.  A podcast of the report highlights for report 07-10 is also available on LAB’s Web site.