U.S. state pension funds returned a median annualized return of 7.3% for the 10 years ended June 30, 2014, with individual plan returns for the period ranging between 5.7% and 10%, new research from alternative investment consultant Cliffwater showed.
About 87% of annualized returns of the public pension fund universe Cliffwater analyzed outperformed the 6.8% return of a 60% equity/40% bond index fund portfolio over the same 10-year period. The state pension funds also outperformed the 6.9% median annualized return of defined contribution plan target-date funds for the time frame.
Cliffwater researchers noted that the 8.1% median annualized return of U.S. endowments with more than $1 billion over the decade topped the median state pension fund return by 80 basis points.
The average asset allocation as of June 30, 2014, of the 97 state pension funds analyzed was 51% public equities, 26% fixed income (including cash), and 23% alternative investments.
State pension funds reduced their average allocation to alternatives by one percentage point over the previous year, which moved to public equities.
“Strong stock returns during fiscal 2014 combined with record private equity distributions reversed the prior 10-year increase in alternative allocations,” Cliffwater researchers said.