Portsmouth retirement fund posts strong recent returns but active managers lag; funded gap remains

Portsmouth's retirement portfolio recorded strong market gains in the second quarter but fell short of its benchmark, presenters told the Retirement Board during a virtual meeting where no quorum was available.

Greystone and Morgan Stanley reported the plan earned roughly 7% net of fees for the second quarter but underperformed the MSCI All Country World Investable Market Index by about 1.6 to 1.7 percentage points for that period. The fund's long-term objective remains the actuarial assumed return of 7.25%.

The shortfall was mainly the result of underperformance by several active equity managers, presenters said. Morgan Stanley singled out GQG's emerging-markets and global equity sleeves: the emerging-markets sleeve returned about 5.3% in the quarter versus roughly 12% for its benchmark, and the global sleeve returned just over 1% against an index return near 11%.

The consultants traced much of GQG's relative weakness to concentrated exposure to India. Morgan Stanley said GQG's India weight ran about 35% of its emerging-markets sleeve versus roughly 17% in the benchmark, and that India underperformed the broader emerging-market index by double-digit percentages in the period. The firm also noted that several Indian holdings faced fresh legal allegations that depressed those stocks.

Board members heard that the plan's asset allocation target remains 70% equities, 22% fixed income and 8% alternatives. At the end of June the plan was slightly overweight equities and held a modest cash balance from recent city contributions. Presenters said approximately 35% of the equity allocation is active and 65% passive.

Separately, John Hancock reported a funded-status reconciliation prepared on the 2024 liability base and rolled forward through the fiscal year. The combined plan's net liability declined from about $87 million in mid-2023 to roughly $63 million as of the most recent roll-forward; funded ratios were described as in the low- to mid-70s. John Hancock said the formal 2025 actuarial valuation is underway and will be presented to the board at the next meeting.

Board members discussed the discount rate used for actuarial work (7.25%), noting that any change to that assumption would affect the timing and scale of city contributions. Consultants emphasized there are two ways to close the funding gap: investment returns or increased contributions.

Presenters also outlined a process of continued monitoring and follow-up. Morgan Stanley said it will bring longer-term performance data for underperforming managers to the next meeting and that Greystone will conduct a deeper review of the alternatives allocation next quarter. John Hancock noted participant-facing education activities and said the recordkeeper runs live webinars in English and Spanish and maintains participant communications.

The board did not take any formal votes during the session because a quorum was not present. The consultants and administrators said they will return with the 2025 actuarial valuation and further manager analysis at a later meeting.