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Cliffwater: State pension funds return annualized 6.8% in 10-year period

U.S. state pension funds earned an annualized 6.8% median return for the 10-year period ended June 30, 2015, compared to 7.3% in the prior year period, showed new data analysis from alternative investment consultant Cliffwater.

The 6.8% median return fell within a wide range of individual pension fund returns — between 4.8% and 8.4%. The Cliffwater report, released Wednesday, noted the best-performing state plan outperformed the lowest-returning fund by a cumulative 63.8 percentage points over the 10-year period.

The best performing fund was the $13.8 billion Oklahoma Teachers’ Retirement System, Oklahoma City, which returned 8.3% for the 10 years ended June 30, 2015. Cliffwater did not identify the worst performer.

Two-thirds of state pension funds in Cliffwater’s report exceeded the 6.5% annualized return of a passive 65% equity/35% bonds portfolio over the same 10-year time period.

However, in aggregate, U.S. state pension funds underperformed the 8% annualized assumed rate of return for the decade ended June 30, 2015, according to the report.

The aggregate asset allocation of the pension funds as of June 30, 2015, remained the same as the prior year, the report found, averaging 50% to public equity, 26% to fixed income and cash, and 24% to alternatives.

“We find that differences in 10-year state pension returns had only a small relationship to risk taking as measured by standard deviation,” said Cliffwater researchers in the report, adding “this implies that 3.3% of the 3.6% 10-year return range was attributable to implementation decisions of individual state pension funds.”

The 28 U.S. state pension funds with different fiscal year ends were excluded from Cliffwater’s analysis.