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October 9, 2017      4:40 PM

Greenfield: Raising returns and reducing costs at ERS is achievable

Economist Dr. Stuart Greenfield argues that if ERS had invested in a market index fund, its total return would have been 3.6 percent greater over five years

While attending college and taking a class in economics, my major, a professor after listening to my response to a question asked:Are you stupid or just from Jersey.” With my usual wit I replied, “both.” I hope the analysis that follows isn’t a repeat performance.

After attending the recent Employee Retirement System’s Trustee meeting, the change in investment policy appears to violate the fundamental rule of finance; higher risk should be compensated by earning higher returns. The adopted changes will reduce investments in fixed income securities and domestic stocks and redirect these reductions to alternative investments, i.e., real estate, hedge funds. This reallocation intends to improve the rate of return on the ERS portfolio.

According to the Pew Trusts, the ranking of ERS is not world-class. In fact, it is not even TRS-class. As the Table One shows between 2005 and 2015, the performance of ERS relative to other public retirement systems has deteriorated.

In other words, the ERS ranking has gotten worse over time.

The full column by Dr. Stuart Greenfield can be found in the R&D Department.

By Dr. Stuart Greenfield

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