WASHINGTON—A new report by The Pew Charitable Trusts examining investments by the 73 largest state public pension funds finds that a shift to more complex investments has significantly increased fees, volatility, and potential losses. The analysis also estimates that $4 billion in investment fees are unreported each year.
The report, State Public Pension Funds Increase Use of Complex Investments, provides updated information on asset allocation, performance, and reporting practices for public pension funds in all 50 states. Together, the funds studied have assets under management of over $2.8 trillion, making up about 95 percent of all state pension fund investments. The report also examines the trend toward alternative investments, such as private equity, hedge funds, real estate, and some commodities.
“Public pension funds have increasingly relied on more complex investments in an effort to diversify portfolios and boost annual returns, a shift that can result in greater financial returns but also can increase volatility and the possibility of losses,” said Greg Mennis, director of Pew’s public sector retirement systems project. “These trends underscore the need for transparency on plan performance and attention to the impact of investment fees on plan health.”
Looking at recent returns across state plans over the past five years, Pew found that funds posted overall fiscal year gains ranging from 17 percent in 2014 to 1 percent in 2016.
The report provides updated, detailed, plan-by-plan information and analyzes the broad trends in state pension fund investments, performance, and reporting practices. Specifically, it finds:
Pew has been reporting on state and local pension data since 2007. This report relies on information collected from state comprehensive annual financial reports, pension plan actuarial valuations, and other relevant documents published by individual public plans from the 73 largest state-sponsored pension funds. The analysis also used data from the Federal Reserve Board’s Financial Accounts of the United States and the Wilshire Trust Universe Comparison Service.
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The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Learn more at pewtrusts.org.