Trotsky: Talk Shifting to “Global Synchronized Slowdown”
Pension Fund Among Those Assessing Coronavirus Risks
2/26/20 2:19 PM
STATE HOUSE, BOSTON, FEB. 26, 2020.....The $79 billion state pension fund posted investment returns of 16.5 percent last year, more than doubling the target return set by the Legislature, but the gains seemed a distant part of the story at the Pension Reserves Investment Management (PRIM) Board meeting Wednesday morning.
Just two weeks ago, the board's investment committee members were reflecting on positive market sentiments and skeptically discussing a pair of headlines - "Synchronized Global Expansion" and "The End of the Boom-Bust Cycle as We Know It," according to fund executive director Michael Trotsky.
Committee members, Trotsky recalled, mentioned the possibility of shocks to the markets, including one from the spreading COVID-19, an infectious disease caused by the most recently discovered coronavirus.
"As we sit here today, I am amazed at how quickly market sentiment can change, and how quickly the confidence of market participants can change -- and I've been doing this for nearly 30 years," Trotsky said, according to his prepared remarks. "Today the fear is about a global synchronized slowdown, whereas two weeks ago it was the exact opposite."
There have been tens of thousands of cases reported of the COVID-19 coronavirus, which can cause anything from mild illness to death and for which there is currently no vaccine. The virus has been steadily advancing into new countries around the globe after first appearing in China.
In its situation report Tuesday, the World Health Organization said Afghanistan, Bahrain, Iraq and Oman had reported coronavirus cases in the last 24 hours and counted more than 80,000 confirmed cases globally, with 2,666 deaths in China and 34 deaths outside of China. The WHO report cited 53 confirmed cases in the United States, all of which were connected to people likely exposed to the virus while outside the United States.
"In addition to the great human tragedy it is causing, the virus will at least have a temporary negative impact on global economic growth, but right now there is no way to determine when it will be contained, how much slowdown it will cause, and if economies will be able to withstand the shock," Trotsky said.
PRIM is invested in Moderna, a Cambridge company that has developed an experimental coronavirus vaccine, through the venture capital firm Flagship Venture Partners, the largest stakeholder in Moderna, which has a manufacturing plant in Norwood.
The S&P 500 was down 1.2 percent last week before declining 3.3 percent on Monday and another 3 percent on Tuesday, said Trotsky. Markets rose Wednesday, before more selloffs.
While "extreme volatility has returned," Trotsky said, the state pension fund has performed well over the years in both up and down markets.
The fund's 10-year rate of return is 9 percent, compared to the actuarial target set by the Legislature of 7.25 percent. Gains in 2019 were second only to 2017, when the fund posted a 17.7 percent return. The gains last year added $11.1 billion to the fund's total value.
A fund spokesman said he expects first-quarter investment return results will be available when the board meets in May.
"Calm the Fear"
President Donald Trump and U.S. Centers for Disease Control and Prevention officials plan a 6 p.m. coronavirus briefing Wednesday.
"I think it's going to work out fine," Trump said Tuesday during a visit to India. "I hope so." The president added, "I think that whole situation will start working out. A lot of talent, a lot of brainpower is being put behind it. Two and a half billion dollars we're putting in."
Public health officials in the U.S. have characterized the immediate risk as low, but are preparing to deal with "community transmission" of coronavirus, from person to person, as the virus spreads into new countries.
Massachusetts public health officials on Feb. 1 announced the state's first, and so far, only reported coronavirus case, a Boston man who had recently traveled to Wuhan, China, where the outbreak got started.
Rep. Jon Santiago, an emergency room doctor at Boston Medical Center, also serves on the Legislature's Public Health Committee. During an appearance Tuesday on WGBH'S "Greater Boston," Santiago said he worked three nights in a row this week in the ER and diagnosed the traditional flu a "whole host of times."
"To me. that's probably what I would be more concerned about than the coronavirus," Santiago said of the flu.
He added, "I look at the role of every elected official as to calm the fear that's there. Right now there's a bit of hysteria there."
Dr. Erica Shenoy, associate chief of the infection control unit at Massachusetts General Hospital, appeared with Santiago on the program and said "for the individual person on the street, right now, the flu is much more of the risk" than coronavirus.
However, she said preparations are necessary "for a time in which we will have many more people infected," adding that 80 to 90 percent of those people will have mild to moderate disease with another segment requiring hospitalization, including in intensive care units.
"What differs from the flu and I think what makes us worried is that we don't know everything about this virus -- we know a lot about the flu -- and we don't have treatments or a vaccine," Shenoy said.
"Hospitals are certainly working to prepare for this," Shenoy added.
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