Large U.S. public pension funds posted double-digit returns for the year ended June 30, following two years of lackluster returns.
Those results didn't surprise consultants, who pointed to public equity markets' strong performance over the year, but they cautioned that the outlook for U.S. equities isn't robust.
For the 12 months ended June 30, the Russell 1000 returned 18.03%; the Russell 2000, 24.6%; and the MSCI Europe Australasia Far East index, 20.27%. Over the same periods in 2016 and 2015, the Russell 1000 returned 2.93% and 7.37%, respectively; Russell 2000, -6.73% and 6.49%; and MSCI EAFE, -10.16% and -4.22%, respectively.
The median one-year return as of June 30 of the 34 number of plans tracked by Pensions & Investments through Aug. 30 was 12.4%.
"How public markets (stocks and bonds) performed will dictate how many of these public funds also performed," said Gregory DeForrest, senior vice president and co-manager of Callan Associates Inc.'s San Francisco fund sponsor consulting office.
For the year ended June 30, Callan calculated a median return of 13.06% for 107 public plans with more than $1 billion in assets.
While public market beta returns are "the main levers moving these funds around," many of Callan's public pension clients also saw positive manager alpha over the last couple of quarters, particularly with international equity, domestic equity and fixed income, Mr. DeForrest added.