The Canadian Model: Invented in South Dakota?

Found via Abnormal Returns. It looks like the South Dakota Annual Report is also available HERE.

What public pension system in the US of A is the best? Seriously, take a second and jot down the retirement system or investment council you think generates the highest investment returns. Got it?

Anybody pick the South Dakota Retirement System or its Investment Council? I didn't think so. But the SDIC just clocked 19.5 percent for the fiscal year ending June 30, which is truly remarkable.

Here's how the Chairman of the SDIC explained the performance in a recent legislative session: "The staff for the last four years have hit home runs every year. This year, they hit a grand slam walk-off home run."

No kidding. The Chairman went on to say that he expects this performance will place the SDIC as the single best performing pension fund in the nation. And I bet he’s right. You know why? Because the SDIC is almost always among the best funds in the nation.

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So, you may be wondering, how does the SDIC do it? Let’s just say that the “Canadian Model” may have been invented in South Dakota. Indeed, the SDIC manages most of its assets internally:

“The Investment Council manages most assets internally to save money and to try to earn higher returns. Internal management is cheaper than external managers, especially for expensive areas such as global equity, high yield, and arbitrage. Index funds are another low cost alternative, but would preclude any opportunity to add value above index returns. The Council believes the superior performance that has historically come from its internal management relates to a greater focus on long-term value and increased conviction from performing in-house research.”