Pensions & Investments
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      Daniel McHugh
      Aviva Investors promotes from within for real assets CIO
      Marc Rowan
      More alts managers seek expansion to retail market
      Mellody Hobson, president of Ariel Investments, speaks during an interview in Hong Kong on Sept. 1, 2017
      Ariel launches effort to boost minority business owners
    • Kieran Mistry
      Hymans Robertson picks head for new non-traditional risk transfer unit
      Troy Saharic
      NEPC brings on director of new business development
      Bill Foley
      Foley-backed SPAC agrees to $7.3 billion deal with Alight
      Jason Schwarz, chief operating officer of Wilshire,
      New owners have big plans for future of Wilshire
    • Mitchells & Butlers turns off tap on pension contributions until April
      Jerome Powell, chairman of the Federal Reserve, adjusts his glasses during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington on Sept 24, 2020.
      Powell says Fed will hold steady during economic recovery
      Institutional investors mobilize for equitable global COVID-19 response
      Few participants tapped savings to weather pandemic – Vanguard
    • DC plan sponsors differ on need for annuities – survey
      Biden’s retirement idea getting the cold shoulder
      Few participants tapped savings to weather pandemic – Vanguard
      pie chart with calculator
      Fidelity: Savers added big to retirement accounts in Q4
    • After strong 2020, ESG investments forecast to grow more – Moody's
      Emissions rise from the coal fired power plant in South Carolina
      U.K. managers seen pressuring firms on diversity, climate change
      Asset management industry remains vastly white, male – survey
      Institutional investors mobilize for equitable global COVID-19 response
    • 2 U.K. pension execs take on ESG investing in new podcast
      Donation illustration
      Jefferies will use trading commissions to do good
      Michael Arougheti
      SPACs ride wave as latest investment darling
      Spirit winners
      Prudential honors young people who are helping out
    • Robert 'Rob' Shafir listens during a Senate Permanent Subcommittee on Investigations hearing in Washington on Feb. 26, 2014
      Sculptor hedge fund hits sixth straight year of outflows
      The WallStreetBets forum on the Reddit Inc. website on a laptop computer and the GameStop logo on a smartphone in an arranged photo.
      GameStop frenzy has hedge fund managers rethinking next moves
      Gabe Plotkin, chief investment officer and portfolio manager of Melvin Capital Management, speaks during the Sohn Investment Conference in New York on May 6, 2019
      Citadel, Point72 back Melvin with $2.75 billion after losses
      Shanghai skyline
      Global hedge funds struggle even in a more open China market
    • A pedestrian wearing a protective mask is reflected in an electronic stock board outside a securities firm in Tokyo on Jan. 4, 2021
      Treasury yields signal buy opportunity for Japanese investor
      MassPRIM sets $450 million for 3 alts funds
      New Mexico allocates $105 million to 3 alts funds
      Boston Retirement tees up $45 million for 2 private market fund of funds
    • Brightwood Capital adds senior investment professional
      Kimberley Stafford and Alec Kersman
      PIMCO names product strategy group head
      Praesidium chooses director of client service, business development
      York Capital appoints new managing director
    • New Hampshire taps New Mexico fund chief as new executive director
      IBM to input $300 million into international pension plans
      Arconic transfers $240 million in pension liabilities
      S. Korea’s National Pension Service gains almost 10% in 2020
    • Brightwood Capital adds senior investment professional
      New Hampshire taps New Mexico fund chief as new executive director
      Kimberley Stafford and Alec Kersman
      PIMCO names product strategy group head
      Praesidium chooses director of client service, business development
    • Carlyle secures $4.1 billion ESG-related credit facility
      Hamilton Lane raises $3.9 billion for fifth secondary fund
      PSG closes first Europe-focused fund at $1.5 billion
      Kohlberg closes latest private equity fund at $3.4 billion
    • Sebastiano Ferrante and Jocelyn de Verdelon
      PGIM Real Estate turns to staff to fill new roles
      European managers key in on specialist strategies
      Ingrid Jacobs
      Jones Lang LaSalle brings on head of diversity and inclusion
      EQT inks deal to buy real estate manager
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Neal and Brady
      Retirement security could be only issue both sides accept
      David Ireland
      Sponsors returning to questions about in-plan annuities
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
    • Charging Bull, sometimes referred to as the Wall Street Bull or the Bowling Green Bull, a bronze sculpture that stands on Broadway just north of Bowling Green in the Financial District of New York City
      Top-performing managers Q4 2020
      P&I 1,000 largest retirement plans: 2021
      Retirement in emerging markets
      Outlook 2021
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • MassPRIM sets $450 million for 3 alts funds
      New Mexico allocates $105 million to 3 alts funds
      Boston Retirement tees up $45 million for 2 private market fund of funds
      Border to Coast picks 5 managers for infrastructure, makes first co-investment
    • MassPRIM sets $450 million for 3 alts funds
      New Mexico allocates $105 million to 3 alts funds
      Boston Retirement tees up $45 million for 2 private market fund of funds
      Border to Coast picks 5 managers for infrastructure, makes first co-investment
    • Emerging Market Equity Manager Services
      Securitized Credit Manager Search
      Private Placements Asset Manager Search
      Actuarial Consultant Search
    • Taiwan Semiconductor’s No. 1 in the emerging markets book
      U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Tesla cartoon
      Don’t confuse wealth creation with retirement saving
      Top 1000 cartoon
      Top 1,000 retirement plans weather storm just fine
      Infrastructure cartoon
      You must go big on infrastructure, Mr. President
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
    • Shifting DC Times – Winter 2021
      Bond ETFs show maturity during Covid market mayhem
      Pension Consolidation: Optimizing Scale and Maximizing Efficiency
      China is embarking on a new stage of growth
    • Lawrence Cunningham
      Commentary: Gensler should keep Clayton’s pragmatic proxy adviser rules
      My-Linh Ngo
      Commentary: Pension funds and the role of the debt market in the fight against climate change
      Bill Peressini
      Commentary: Carbon’s elemental role in the future of impact investing
      Teresa Ghilarducci
      Commentary: Lower rates for longer mean a drastic rethink on funding
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • P&I Content Solutions
      How will gold react?
      To people shaking hands
      P&I Content Solutions
      Lessons From 2020: Today’s OCIO Model Passes a Major Test of Governance
      Sponsored Content By MassMutual
      Leveraging Data to Manage Risk
      Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      0:45
      Private funds weathered 2020 turmoil
      watch video
      0:59
      Secure choice and other retirement plans at a state level
      watch video
      3:33
      P&I 1,000 by the numbers 2021
      watch video
      1:33
      A look at hiring activity in 2020
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
    • POLL: Working after the pandemic
      POLL: The year ahead for the 1,000 largest U.S. retirement funds
      POLL: The Biden administration’s economic plans
      POLL: Retirement issues in 2021
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • By the Numbers for February 2021
      Top Performing Managers of Convertibles, 4th Quarter 2020
      Top Performing Managers of Domestic Growth Equity, 4th Quarter 2020
      Top Performing Managers of Domestic Limited-Duration Fixed Income, 4th Quarter 2020
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Emerging Markets: Expanding Investors’ View
      2021: A Fixed Income Odyssey
      Technology is the New Oil: The Changing Nature of Emerging Markets
      Powering the Change: The power of diversity and inclusion
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
October 09, 2017 01:00 AM

The state of public pensions in 2017

It's not getting any easier to manage public defined benefit plans.

  • Tweet
  • Share
  • Share
  • Email
  • More
    Share
    The long-term secular decline in inflation and long-term interest rates has been a boon for past investment returns. Returns over the next 15 years will be harder to achieve without taking on significantly more risk. For instance, the Municipal Employees' Retirement System of Michigan's long-term expected real rate of return for its global fixed-income investments is only 2.18%. The system's expected long-term real rate of return for listed equities is 5.02%.
    Share
    Assuming listed equities had a constant expected rate of return of 7.5%, a 60/40 portfolio would be well below the assumed rate of return for most plan sponsors. With interest rates at multigenerational lows, a 60/40 portfolio would only return around 5.25%.
    Share
    With the yield on investment-grade fixed-income securities at multidecade lows, public plans have chosen to dramatically lower and/or shift allocations. Sixteen plans now have dedicated allocations to high-yield fixed-income securities, up from 11 in 2006. The average allocation to high yield also has increased to 6.36% from 4.95%. Some 61% of the Virginia Retirement System's fixed-income allocation is in credit.
    Share
    Plans have allocated to alternatives, particularly private equity, to generate higher rates of return. Alternatives in aggregate have increased to 24% from 10% in 2006. Oregon Public Employees Retirement Fund, an early investor in private equity, expects a long-term rate of return for private equity of 7.97% vs. 6.70% for large/midcap U.S. listed equities.
    Share
    Even with a shift to alternative investments, return expectations for entire portfolios have been falling. Numerous plan sponsors will lower their assumed rates of return going forward, such as CalPERS. In 2016, the California Public Employees' Retirement System's board voted to reduce the assumed rate of return to 7% from 7.5% over a three-year period.
    Share
    Better health care has enabled individuals to live longer. Since the early 1950s, the average person in the U.S. who reaches the age of 60 is expected to have six more years in retirement.
    Share
    With budget constraints at fiscally strapped governments, the number of active workers has declined over the past decade. Coupled with members retiring and living longer, the ratio of active participants to retirees has fallen significantly. This changes the cash-flow picture of plans dramatically and puts more emphasis on investment returns. In 2006, the Sacramento County Employees' Retirement System had 14,412 active members and 7,108 retirees. In 2016, the plan had 12,393 active members and 8,710 retired members.
    Share
    Jay V. Kloepfer, an executive vice president and the director of capital markets research at Callan LLC in San Francisco, said decades of insufficient contributions by public plan sponsors have led to the funding problems more than any return shortfalls. "It's not enough contributions. That's it. There are no other factors," Mr. Kloepfer said. On a positive note, these sponsors have started contributing more to plans.
    Share
    Pension funds have dedicated countless hours and paid at least $7.7 billion in investment fees in 2016 to achieve plans' actuarial assumed rate of return. With low returns on listed equities for the year ended June 30, 2016, the median plan returned only 0.8%. Ten-year returns were better at 5.85%, but were significantly below assumed rates of return. The New Mexico Educational Retirement Board was a standout performer in 2016, returning 2.6%, which was a full percentage point above its policy benchmark. The fund also outperformed its policy benchmark over the three-, five- and 10-year periods.
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center