Private equity and REITs generate highest returns for pension plans over 25 years

Private equity was the highest-returning asset class among pension plans from 1998 through 2022, according to a recently released study conducted by CEM Benchmarking that was commissioned by the National Association of Real Estate Investment Trusts. The data encompasses more than 200 public and private pension plans.

Private equity generated a net annualized return of about 10.2%, followed by real estate investment trusts’ 8.2%. Private real estate returned 6.6%, roughly 160 basis points lower than REITs. U.S. large- and small-cap equities had returns of 7.6% and 8%, respectively.

Fixed-income asset classes were among the lowest returns, including the U.S. broad bond (4.5%) and U.S. other bond (3.7%) categories.

U.S. large-cap equities and private equity, with Sharpe ratios of 0.4, had the best risk-adjusted returns. That was followed by U.S. long bonds and REITs, each with a 0.39 Sharpe ratio.