A 2016 article from The Wall Street Journal titled “What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing” has recently resurfaced online, sparking renewed discussion about the Public Employees’ Retirement System of Nevada (NVPERS). However, it might be drawing an outdated point of view.

The article portrayed NVPERS as a minimalist operation, with Chief Investment Officer Steve Edmundson managing the fund through a simple, passive strategy. It even suggested that his toughest daily decision might be choosing between a BLT or a tuna sandwich for lunch. While this portrayal captured the fund’s low-cost, passive approach at the time, it no longer accurately reflects how NVPERS is managed today.

One-man operation?

One of the most striking details in the 2016 article was the notion that NVPERS was essentially a one-man operation, with Steve Edmundson as the sole investment professional managing the fund’s assets. This image became a symbol of the fund’s minimalist approach. However, this characterization is no longer accurate.

In 2021, NVPERS expanded its team by hiring a second investment professional to assist Edmundson, reflecting the growing complexity of managing what has now become a $60 billion fund.

Edmundson himself acknowledged the need for additional support in a March 2024 interview, explaining, “We were a one-person shop for years, but as the fund grew and the market environment changed, we recognized the need for more hands on deck.”

This shift indicates that while NVPERS still emphasizes simplicity and low costs, the operational demands of managing such a large pool of assets have necessitated a broader approach.

Diverse investment strategy

The 2016 article highlighted NVPERS’s reliance on passive investment strategies, primarily through indexed public market investments. At the time, this was an accurate characterization, with the fund heavily weighted toward U.S. stocks, international stocks, and U.S. Treasury bonds. This approach kept costs low and aligned with Edmundson’s philosophy of disciplined, long-term investing.

However, the fund’s strategy has evolved since then. As of June 2023, NVPERS had diversified its portfolio to include 12% in private market assets—6% in private real estate and 6% in private equity. This move into private markets represents a significant development, particularly given the fund’s historical focus on public market indexing.

Edmundson explained the rationale behind this diversification, noting that private market investments have helped reduce portfolio volatility while offering slightly higher returns.

“By adding private real estate and private equity to our allocation, we’ve been able to produce a return stream that’s a little less volatile than if we had remained exclusively in public markets,” he said.

However, this shift also comes with challenges, particularly in managing less liquid and more opaque assets. The 2023 financial report for NVPERS reflects the fund’s cautious approach to private markets, noting that these investments are designed to provide diversification and a different risk-return profile without overwhelming the overall portfolio.

Challenging market

Another aspect that the 2016 article did not foresee is the impact of rising interest rates and increased market volatility on NVPERS’s investment strategy. The financial landscape has changed significantly since 2016, and NVPERS has had to adapt accordingly.

The fund’s heavy reliance on U.S. Treasury bonds—28% of its portfolio—is particularly notable in the current environment of rising interest rates. While this allocation has presented challenges, it has also provided opportunities.

Edmundson noted that the rise in rates has allowed NVPERS to reallocate assets into higher-yielding bonds, thereby potentially increasing returns without taking on additional equity risk. “The increase in rates has been a godsend to the industry,” Edmundson said. “It allows us to go back to a more traditional approach and have a significant portion of our portfolio in lower-risk bonds while still realistically meeting our long-term goals.”

This strategic adjustment underscores the fact that NVPERS is not a “set it and forget it” operation–it is a dynamic fund that responds to the evolving financial landscape, far from the 2016 portrayal.

Despite the changes in strategy, NVPERS has continued to perform well. As of June 30, 2023, the fund had achieved an annualized return of 9.4% since its inception 39 years ago, surpassing its long-term actuarial objective of 7.25%.

Information for this briefing was found via The Meb Faber Show and the sources and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.