U.S. state pension funds earned an annualized 6.8% median return for the 10-year period ended June 30, 2015, compared with 7.3% the prior year, showed new data analysis from Cliffwater LLC, Marina del Rey, Calif.
The $13.8 billion Oklahoma Teachers' Retirement System was the best-performing state pension for the period, with an 8.3% return, followed by the 8.1% return produced by the South Dakota Investment Council for the $10.8 billion South Dakota Retirement System, and Minnesota State Board of Investment's 7.9% return for the $65 billion of retirement plan assets it manages, Cliffwater's recently released report showed. (All returns cited are annualized figures.)
The alternative investment consultant's yearly report — “An Examination of State Pension Performance: 2006 to 2015” — analyzed 10-year returns of the 64 U.S. state pension plans with June 30 fiscal-year ends. The 28 U.S. state pension funds with different fiscal-year ends were excluded from Cliffwater's analysis.
The 6.8% median return for 2015 fell within a wide range of individual pension fund returns — between 8.4% and 4.8%, a phenomenon Cliffwater researchers said in the report was “mostly … attributable to implementation rather than differences in asset allocation. We find that fund/manager selection by state pensions, in aggregate, has been accretive to return over the (10-year) study period.”
Two-thirds of state pension funds in Cliffwater's report exceeded the 6.5% 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% assumed rate of return for the decade ended June 30, 2015.