Over the fiscal year ended June 30, 2025, capital markets experienced a series of noteworthy developments. Among the most prominent were the implementation of tariffs by the Trump administration, followed by the so-called “tariff flip-flop,” in which several previously imposed tariffs were suspended. The rise of artificial intelligence emerged (as a dominant investment theme, not the Skynet ‘Terminator’ type of rise), and ongoing debate around the Federal Reserve’s policy direction added to market uncertainty. Meanwhile, geopolitical risks remained elevated, and market equity valuations reached historical heights. The oft-misquoted adage, “May you live in interesting times,” seems particularly fitting for the past fiscal year.
Amid this volatility, the LAGERS investment portfolio maintained its disciplined focus on long-term objectives, deliberately looking beyond short-term disruptions. Throughout the year, the investment team achieved several key milestones, including the completion of a new Strategic Asset Allocation (SAA) study, the implementation of a multi-asset risk management system (BlackRock Aladdin), and the development of a proprietary internal analytics platform, the Investment Dashboard, designed to assess macroeconomic conditions and capital markets.
These initiatives enhance the investment team’s ability to remain focused on the factors that truly drive long-term performance, filtering out short-term market noise. For fiscal year 2025, the LAGERS portfolio delivered a positive absolute return of 6.4%, though it underperformed its policy benchmark return of 10.9%, resulting in a relative underperformance of 4.5%. While three-year excess returns are currently negative, five- and ten-year excess returns remain positive, reflecting the strength of the portfolio’s longer-term positioning.
Key performance highlights and detractors for FY25 include:
- Equity Portfolio: As the portfolio’s largest allocation, equities were a primary contributor to absolute returns, delivering a total return of 6.8%. However, this lagged the equity benchmark return of 16.6%.
- Alpha Portfolio: Generated the highest absolute return at 8.72%, outperforming its benchmark of 7.8%. Due to its smaller allocation, its overall contribution to total portfolio return was more limited.
- Fixed Income Portfolio: Produced a 6.8% return, slightly trailing its benchmark return of 7.2%.
Looking forward, the portfolio is well-positioned for the current phase of the market cycle.
The investment team will continue to emphasize long-term drivers of performance and remain committed to navigating short-term volatility with discipline and strategic focus—regardless of how “interesting” the times may become.
