2015 was a difficult year for the portfolios of public pension funds; the median plan returned just 0.36 percent, according to the Wilshire Trust Universe Comparison Service.
But public pensions still beat out corporate plans and endowments. Those institutions posted negative returns of -0.37 percent and -.045 percent, respectively, according to the Wilshire data.
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Public pensions with more than $5 billion of assets invest less in U.S. stocks and more in alternatives like private-equity and hedge funds, with a median allocation of 16.1 percent to “alternative investments.” Those retirement systems had a median return of 0.54 percent in 2015, little more than the others.
“This is another year where it’s been difficult to sing the praises of diversification — when one of the top asset classes is the one you’re diversifying out of, which is U.S. equities,” said Waid.
“When you start to look at the other asset classes that you diversify into, you didn’t do well,” he said, referring to international and emerging-market stocks and commodities.
States and cities are slowly lowering their investment-return assumptions. New York Comptroller Thomas DiNapoli lowered the state pension fund’s assumed rate to 7 percent in September. California’s Public Employees’ Retirement System, the largest U.S. pension, is also slowly cutting its investment target, now 7.5 percent.
Public pensions returned a median 7.93 percent for the three years ending in December, 7.37 percent over five years and 5.99 percent over 10 years, according to Wilshire TUCS.
The median plan had a 44 percent allocation in U.S. stocks, according to Wilshire.
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