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A Closer Look at AFM-EPF Performance

There has been an attack narrative going on for some time now that the AFM-EPF performs “dead last” over the last 10 years compared to its peer group at a return rate of 3.2%.


The fact is, that performance number is taken from selected performance reports and includes in the average the disastrous year ending 3/31/09 when the fund lost $560 million on the market, representing 29% of its value. The average loss for funds in the financial crisis was 25%, so the AFM-EPF did 4% worse than average. Indeed if you look at the chart used to support the “dead last at 3.2%” narrative, you will see the average over the last 10 years for the 18 funds represented in the chart was pretty dismal with the leaders at a little over 5%. If you look at charts from other reports you will see the AFM-EPF move up and down in its performance relative to the other funds and none of the funds are more than a few percentage points away from the others.


“Dead last” loses some of its significance when taken in that context.


There has been slightly less fuss about the fund under-performing its benchmarks. While the ranking between the benchmark and the actual performance may raise eyebrows, we’re still talking about a difference of 3 or fewer percentage points. We don’t know how the fund sets its benchmarks and we are not likely to find out for awhile because of an ongoing lawsuit preventing the fund from explaining its strategy.


If you split off the disastrous year ending 3/31/09 the fund has returned an average 9.3% net of fees, higher than its assumed rate of 7.5% from 2009-2016.


The fact is, investment performance is the wrong place to look for a pathway to recovery for the fund. In the year ending 3/31/17 it earned just short of $67 million from employers, $214 million on the market and it paid out $158 million in benefits. That means $91 million earned on the market was needed just to avoid losing more ground. As long as the fund is paying out over twice what it makes in employer income it will be unrealistically dependent on market returns, a precarious place to be indeed.


Insisting on putting different people—“experts,” whatever that means—in the trustee chairs, will not change the huge negative cash flow problem the fund has. Folks who are truly interested in bringing the fund back to health should be focusing on ways to get more unfettered capital to its bottom line.

#lookmoreclosely

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