KPPPA portfolios outperform benchmarks in fiscal year; pension composite up 13.47%

Steve presented the investment update and told trustees that markets rebounded over the fiscal year and KPPPA portfolios produced strong returns. The pension composite returned 13.47% for the fiscal year compared with a 12.75% benchmark; the insurance composite returned 13.37% and both composites outperformed in multiple time horizons. Steve said the combined dollar impact of outperformance equates to roughly $223 million for the fiscal year ($152 million pension composite, $71 million insurance composite).

He summarized recent monthly dynamics: July saw modest returns amid renewed conflict in the Middle East and a pullback in AI‑related momentum; August rebounded with stronger breadth and corporate earnings. Staff also flagged sector and asset‑class issues: private equity and specialty credit had lower distributions and greater vintage‑age, while real‑return allocations expanded and incurred higher fees as portfolios were scaled up. Staff noted the specialty credit portfolio has limited exposure to AI‑impacted tech and no exposure to BDCs (business development companies) cited in recent headlines.

Trustees asked questions about fee trends, the investment budget, and liquidity dynamics; staff said the 2027 investment budget is reduced modestly from 2026 with expectations of lower legal expense and performance fee changes tied to portfolio mixes.