NYC’s 5 Pension Funds Return Combined 8% in Fiscal 2023

The returns are expected to reduce the city’s required contributions to the pension systems by approximately $550 million over the next five years.

The five pension funds that comprise the New York City Retirement Systems reported a combined net return of 8.0% for the fiscal year that ended June 30, led by a rise in total asset value of equity investments to $253.19 billion from $240 billion at the end of fiscal 2022.

The performance, which surpassed the retirement systems’ 7.0% target return, was a sharp turnaround from fiscal 2022, when the pension funds lost a combined 8.65% as stocks tanked and private markets were the top performers. This year, most alternatives delivered a relatively flat performance, while stocks have rallied.

“Despite global economic challenges and market volatility, New York City’s pension funds surpassed our benchmarks and our target rate of return over the past year,” New York City Comptroller Brad Lander said in a release. “I am grateful to the staff of our Bureau of Asset Management for their hard work and rigorous approach to securing added value.”

When the pension funds’ annual return exceeds the target return, the city budget is adjusted to require lower deposits. Likewise, when returns are below the 7% assumed rate, as they were in fiscal 2022, the city must contribute additional funds. The annual adjustments are spread over five years to smooth the impact. The NYC comptroller’s office said the 8.0% returns for the 2023 fiscal year will reduce the city’s required contributions to the pension systems by approximately $550 million over the next five years.

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The pension funds reported three-, five- and seven-year annualized returns net of management fees of 7.5%, 6.8% and 7.9%, respectively, and had a combined funded ratio of 82% as of the end of June.

“I’m proud of the positive returns achieved in a challenging year, but we must continue to focus on long-term outcomes,” NYC Retirement Systems CIO Steven Meier said in a release. “We will continue to work diligently to build on our capabilities to meet these obligations over a long investment horizon.”

The top-performing asset class for the pension funds was U.S. equity, which contributed 5 percentage points of the 8% performance, followed by developed equity outside the U.S., which contributed 1.8 percentage points. Emerging markets and high yield each contributed 0.5 percentage points, while infrastructure and opportunistic fixed income each contributed 0.1 points of the total 8% return. The only asset classes that contributed negatively to the portfolios were core fixed income and private real estate, which contributed -0.2 percentage points and -0.1 percentage points, respectively.

Treasury inflation-protected securities, private equity, hedge funds and cash did not contribute to the fiscal year 2023 return.

As of the end of June, the retirement systems’ asset allocation was 28.6% in U.S. equity, 20.7% in core fixed income, 9.9% in developed ex-U.S. equity, 9.7% in private equity, 6.6% in private real estate, 6.5% in emerging markets, 5.3% in high yield, 4.1% in opportunistic fixed income, 3.3% in TIPS and 1% in convertible bonds.

The NYCRS systems also announced they will undertake “strategic asset allocation reviews” in the coming months, as they do every three to five years. As part of the process, the trustees, along with the Bureau of Asset Management and each fund’s general consultant, will scrutinize market trends and adjust the target allocations for each asset class for the coming years.