DATE: Tuesday, July 29, 1997                TAG: 9707290258

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY TOM SHEAN, STAFF WRITER 

                                            LENGTH:   46 lines

STRING STOCK MARKET HELPS THE STATE'S PENSION FUND

Helped by the blistering pace of rising stock prices, the pension fund for state employees and many municipal employees in Virginia reported a 21.9 percent rate of return for the fiscal year ended June 30.

The fund's robust results for 1997 came on top of two previous years of strong returns. But the Virginia Retirement System is braced for an eventual downturn in stock and bond prices, Erwin H. Will Jr., the retirement system's chief investment officer, said Monday.

``The last three years have been extremely favorable for investments, but you can't count on that lasting,'' he said. ``You need to anticipate that some years will not be as good.''

The retirement fund, said Will, has not changed the mix of its investments and hasn't sought to insulate itself from an eventual downturn in stock prices.

``Most of those things turn out to be very costly,'' Will said. ``There's no free lunch, and you can mess up by trying to be clever.''

The retirement fund's assets at the end of June totaled $26.8 billion, compared with $22 billion one year earlier.

The system still lacks the volume of assets needed to meet its projected obligations to beneficiaries, Will said. But three consecutive years of strong investment results have raised its assets to 80 percent of what it's likely to need over time, he said.

The system, said Will, has been underfunded largely because beneficiaries have been living longer than initially projected. The retirement system has 277,000 active members and provides income to 82,000 retirees.

When state and municipal pension funds with at least $10 billion of assets are ranked by performance, a 21.9 percent rate of return for fiscal 1997 probably will put the Virginia Retirement System within the top one-third to top one-quarter, Will said.

Several consulting firms are due to publish comparisons of pension fund results within the coming month.

The strongest investment returns for the Virginia retirement fund in fiscal 1997 came from alternative investments, a category that includes venture capital.

These generated a 30.9 percent return last year, largely because there has been an especially strong market for initial public offerings of stock. Some of the system's venture capital investments were converted to stock, which helped its returns, Will said.

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