The New York City Pension Funds have earned more than a 20% return over the 12 months ended June 30, city Comptroller John Liu seemed rather pleased to report Tuesday.
In a press release, Mr. Liu trumpeted the funds' best 12-month performance since 1998 is due in part to his office's Bureau of Asset Management working with the pension boards' trustees to make changes over the past 18 months at the NYC funds, which manage $119 billion. The changes being touted include hiring investment professionals to find the best opportunities in stocks, bonds, hedge funds, private equity and real estate.
It's quite possible that these moves helped the funds, which generated returns of 14% in the prior fiscal year. But the real driver was the unusually strong stock market.
The Standard & Poor's 500 stock index returned 31% over the same 12-month period, providing a huge lift for the city pension funds, which had 63% of their assets in U.S. or overseas stocks as of April 30. Heck, the city pension funds would have performed even better had they ditched all the professional money managers they hired and simply stuck their money in a low-cost mutual fund that tracks the S&P 500. (Not that that would be advisable for any steady-Eddie pension fund, given how volatile stocks can be.)
The stock market's tailwind helped just about every pension fund in the nation. The California Public Employees' Retirement System, for example, saw its pension fund's value rise by 16% between July 1, 2010, and June 27, 2011, according to data on its website.
One reason CalPERS didn't perform quite as well as the city pension funds is that its portfolio is rather different. In some ways, CalPERS is more conservative, with only a bit more than half of its $232 billion of assets in stocks. It also has a lower percentage of its assets in bonds. CalPERS does invest more than the city pension funds do in private equity and real estate, which can offer attractive returns over the years but can be painful to hold during tough times.
While it's undeniably good news for former New York City teachers and police officers that their local public pension funds have seen such robust investment performance, it's also clear the gains could prove fleeting. In fact, the city comptroller's office would have had even better news to report had it chosen to issue a press release two months ago. At that time, the pension funds were up more than 25%. Since then, however, the stock market has retreated a bit.
Aaron Elstein is a senior reporter with Crain's New York Business, a sister publication of Pensions & Investments.