The average rate for return for MPACT investments is 4.8% and three points below the target rate of 7.8%. However, the actual rate of return beat the S&P 500 and the Russell 2000 ever since its inception in October 1997 by five points. The S&P 500 declined 0.26% and the Russell 2000 declined 0.23%. However, the annualized rate of return for the S&P 500 was 4.32%.*
This little comparison poses an interesting question. Beating the market by fifty basis points makes it clear the track record of MPACT investing has not been a bad one. However, the question must be asked if it is reasonable to expect investments to support the program when beating the market by fifty basis points is still three hundred points short of the target.
*What motivated me to write this post was one commentor accused Treasury and MPACT staff of mismanaging the investments. His opinion was since the Dow went to 13,000 twice, then Tate et al screwed the pooch on managing the program. I thought it would be interesting to compare the program to the broader stock market indexes. MPACT followed the market pretty closely. It beat the annualized rate of return by 50 basis points.
The rates of return for MPACT since October 1997 are:
FY 1998* 10.8%
FY 1999 8.5%
FY 2000 1.8%
FY 2001 -0.3%
FY 2002 -9.1%
FY 2003 4.7%
FY 2004 17.9%
FY 2005 6.7%
FY 2006 7.7%
FY 2007 16.4%
FY 2008 -9.3%
FY 2009 -14.4%
FY 2010 13.0%
FY 2011 22.6%
FY 2012 1.1%
*Represents a partial fiscal year from October 1997 -June 1998.
**Performance returns gross of fees. The gross return is 5.2% but when deducting for fees, weights, etc, the rate is 4.8%.
11 comments:
Rate of return on investments is only part of the equation.
MPACT only covers tuition and fees. Understanding the recent rate of increase in those two metrics as well as the annualized rates for same included in the original MPACT contract pricing model will be required to assess sustainability.
MPACT has been impaired by both market performance as well as cost increases that outstripped the original model.
Not disputing you one bit. Just putting the rate of return in a little perspective since some commentors like to say the investments were screwed up when the dow went twice to 13,000. I consider the broader indexes to be a better indicator.
I think you need to put side-by-side the year-to-year for MPACT and the indices you are showing for a better comparison.
You've got the numbers. Do it yourself.
Damn KF - don' you understand? You are to do it for them; all they want to do is bitch. Not do any individual thinking!
No disagreement KF @ 10:39 AM.
MPACT has problems because the models they used have not been continually monitored and re-jiggered -- especially in light of the (relatively) short investment horizon as you drew attention to in another post.
Some years back, at least pre-Reeves, the MPACT team at Treasury used to make available a table detailing 30 years history of tuition increases in Mississippi. (They should have used a rolling 18-year window, potentially weighted, but I digress). If I recall correctly they viewed the 30-year annual average growth in the 6-6.5% range.
So both the net return vs assumed model rate of return is hosed but tuition growth over the last half-decade, at least, has outstripped the model rate -- two key curves moving in the wrong direction at the same time.
The rabid Reeves cult will disagree but it is their Boy Wonder who dropped the ball on MPACT. The model went seriously out-of-whack on his watch and he did nothing. He can't run from the facts and the numbers.
Well now, since I was the commenter that KF is referring to here, I find this interesting. I look at the chart going back to the beginning of the decade in 2001, and i see some very wild swings from year to year, some years with negative return and some years with a double-digit return. The 4.8% return, averaged with all years totaled together, apparently still did not yield the 7% plus figure they claim was needed to be sustainable over the long term. Either their initial assumptions were flawed, or their actuarial assumptions were, and remained flawed.
Another factor involved could be that the state legislature has not properly funded higher education in this state, and this has caused an exponential increase in general public college costs beyond the normal rates of inflation and enrollment increases. At any rate, thank you KF for bringing this to my attention, it is very pertinent information in regards to this MPACT program and it's discontinuance at this time.
Take the first shot 4:31 PM at defining where you would increase taxes.
5;28, maybe taxes don't need to be increased, maybe we could look at responsibly managing what we already have. Last time I checked, the top 103 out of 105 large corporations doing business in Mississippi, folks like WalMart, McDonalds, Lowe's, etc., effectively paid ZERO income taxes after using deductions and loopholes in the state tax code. Average small business and wage earner paid his 5% state income tax.
Oh, Oh, Oh yeah baby(6:08 PM). Ohhhh.
"Maybe we could look at responsibly managing WHAT WE ALREADY HAVE.
Ohhhhhhhh.
Last time I checked, the top 103 out of 105 large corporations doing business in Mississippi, folks like WalMart, McDonalds, Lowe's, etc., effectively paid ZERO income taxes after using deductions and loopholes in the state tax code.
OOOOHHHHHhhhhhhhhhhhhhhhhh.
9:58, please put the pipe or bottle down before you respond back to me in the future, kind sir or mam.
Post a Comment