Retirement Fund posts a loss from FY2021 to FY2022

Pago Pago, AMERICAN SAMOA — Independent auditors cited “volatile market conditions” as the reason the American Samoa Government Employees Retirement Fund (ASGERF) recorded a loss of more than $37 million in fiscal year 2022 from FY 2021.

Prepared by the U.S-based firm of Moss Adams LLP, the audit report said that the net position of ASGERF at the close of FY 2022 totaled $158.14 million — which is held in trust for pension benefits — and this is a drop as compared to the net position of $195.49 million held in trust in FY 2021.

“ASGERF’s total net position decreased by $37,349,096 or 20.6% between 2022 and 2021, due to the volatile market conditions during the year, resulting in a net depreciation in the fair value of the Fund’s investments for the year ended September 30, 2022,” the auditors explained under the “financial highlights” of the report.

The auditors “financial analysis”, states in part that the Fund’s fiduciary net position and funded status may serve over time as a useful indication of ASGERF’s financial position. “The assets of ASGERF fell short of covering its liabilities at the close of the year,” they explained.

According to the report, ASGERF’s funded status — the Fund’s fiduciary net position as a percentage of the total pension liability was an estimated 48.2% as of September 30, 2022, an increase from 43.8% as of September 30, 2021.

“The increase in the funded status was primarily due to the new legislation that was passed to increase contribution rates for both the sponsor and members beginning October 1, 2022,” the report explained.

The legislation mandates that sponsors contribute 10%, an increase of 2%, and members contribute 4%, an increase of 1%. As a result of the increased future contribution rates and projected future cash flows, the Fund’s discount rate increased from a blended rate of 4.39% to 8.0%, the Fund’s assumed long-term rate of return on investments.

INVESTMENTS

Regarding “investments”, the audit noted that for the year ended September 30, 2022, the Fund’s weighted average return on its investments was -14.5%, with the Fund’s majority of its portfolio invested in domestic equities and cash equivalents.

During the year, the Board of Trustees approved an updated investment policy that revised the Fund’s asset allocation. The Fund’s asset allocation as of September 30, 2022, was 69% in domestic equities, 5% in international equities, 1% in cash equivalents, 17% in fixed income securities, 5% in alternative investments, and 3% in real estate.

The auditors provided in their report a summary of the global economy, saying that during 2022, the U.S and other countries continued to adjust responses to the COVID-19 pandemic. Despite the relaxing of COVID-19 restrictions, the domestic and world economies have been challenged. Additionally, the Ukraine/Russian war, supply chain disruptions, changes in spending patterns, excessive monetary stimulation and low interest rates have all contributed to a high level of global inflation.

It also says that the U.S economy and stock market struggled during 2022 with economic uncertainty and volatility with trillions of dollars in liquidity drying up after the infusion of money given out by the Federal Reserve and the U.S Congress during the height of the COVID-19 pandemic

According to the auditors, the global stocks and economies also faced extreme challenges during the year with much uncertainty with the war in Europe, high inflation and banks pursuing an aggressive series of policy rate increases as contributing factors. It has been seen that when long- term expectations are rising, it has led international stocks to outperform U.S. stocks.

“Investors and speculators did not expect the rise in interest rates and increased volatility in the market to happen as quickly as it did. But the war in Ukraine sent energy prices spiking, and supply-chain problems were prolonged than expected, causing inflation to spike sharply higher,” the auditors said.

They said that the message from the Federal Reserve was that it will tighten its policy to slow down inflation. As with the tightening policy, the risk of recession is high. However many money-watchers say that risk was overstated. 

“With both the domestic and international stock markets being so unstable and unpredictable, the Board [of Trustee for the Fund] in conjunction with its investment consultant decided to slightly diversify the portfolio to align with the updated asset allocation to offset the instability in the markets but the majority is still being invested domestically,” the auditors pointed out.

Samoa News will report in future edition on other issues of interest cited in the report.