US Public Pension Funds Achieved 1-Year Returns of 9.7% in Q2

As of the second quarter of 2024, U.S. public pension funds returned a median 9.7% over a one-year period ending with 2024’s second quarter, per the Nasdaq eVestment “CIO Quarterly Q3 2024” report, which tracks the performance and trends of public funds.

The top-performing 5% of funds reported a median performance of 12.81%, while the bottom-performing 5% had a median return of 7.21%, slightly exceeding the 7% frequently used as an assumed rate of return among U.S. public funds.

The median fund returned 3.19%, 7.49% and 6.70% over the past three, five and 10 years, respectively. During the same periods, the best-performing 5% of funds returned 5.46%, 9.06% and 9.90%, and the worst-performing 5% of funds returned 1.30%, 5.80% and 5.30%, over three, five and 10 years, respectively, eVestment reported.

Across the board, poorer performance across the three-year period is attributed to the shock of the COVID-19 pandemic and heightened inflation. The lowest-performing funds were flat over this period, with the top-performing funds failing to break 6%.

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The report tracked 225 public plans across Nasdaq eVestment’s peer benchmarking universe.

Asset Allocation

According to the report, the median fund had a median asset allocation of 39.12% to equities, 19.62% to fixed income, 16.64% to private equity, 4.83% to private debt, 4.79% to hedge funds and 1.08% to balanced/multi-asset.

The survey revealed numerous different ways a fund could allocate its portfolio and outperform, but the top-performing funds all had increased exposure to private markets. Nine out of the 10 top-performing pension funds had an equity allocation less than the median, while eight of the top 10 funds had an allocation to private equity greater than the median. All of the top 10 reported a fixed-income allocation less than the median.

The survey used four California county pension funds as a proxy for asset allocation trends: the Imperial County Employees’ Retirement System, the Los Angeles County Employees Retirement Association, Orange County Employees Retirement System and the Ventura County Employees’ Retirement Association. Combined, the systems manage $110 billion in assets.

From the fourth quarter of 2018 through the fourth quarter of 2023, all of the funds, except for OCERS, decreased their target allocations to equities. All four plans decreased their fixed-income targets over the five-year period.

Three out of four plans increased their allocations to private markets. VCERA increased its private equity target to 18% from 10% over the period and increased its private debt target to 8% from nothing.

LACERA decreased its equities target to 34% from 43% and dropped its fixed-income target to 10% from 18%, funding an increase in its private equity target (to 18% from 11%) and private debt target (to 8% from 2%).