Oil and natural gas holdings are sources of outperformance for US public pensions, according to a study released by the American Petroleum Institute (API).
Data analyzed by advisory firm Sonecon showed returns on oil and natural gas investments were consistently higher than other investments from 2005 to 2013 for the largest pension funds in 17 states.
Over the eight years—“spanning vigorous expansion, deep recession, and economic recovery”—oil and natural gas investments accounted for an average of 4% of total pension plan assets and yielded 8% of total returns, the report said.
“During good economic times—or challenging ones—oil and natural gas investments far outperformed other public pension holdings,” said Kyle Isakower, API’s vice president of regulatory and economic policy. The oil and natural gas industry “provides stability to the nest eggs that millions of Americans are counting on for a secure retirement.”
These investments also averaged returns of 130% over the eight years, compared to just 68% for non-petroleum holdings, the report said.
In addition, every $1 invested in US oil and gas stocks in 2005 was worth $2.30 in 2013, API and Sonecon said, while $1 invested in other assets over the same period was worth $1.68.
Based on data collected from annual financial reports, API noted that net capital gains from oil and gas investments for the 17 state’s pension plans reached $92.5 billion from 2005 to 2012. These gains were 9.2% of the funds’ total cumulative net capital gains of more than $1 trillion.
“The lesson, frankly, from this analysis is that pension plans would be in better shape if they increased the share they invest in oil and gas,” said Robert Shapiro, Sonecon’s chairman, during a conference call. “Regardless of how much you invest, the returns are consistently above those of other assets.”
The report studied data from California, Florida, Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Ohio, Pennsylvania, South Carolina, and West Virginia.
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