U.S. state pension plans saw average median returns of 8.6% and 5.8% for the 10 and 20 years ended June 30, 2020, respectively, said Cliffwater's most recent annual state pension performance report.
State plans saw an average annualized return of 9.7% for the 10 years ended June 30, 2019.
Pensions & Investments' Pension Fund Returns Tracker shows that the two top-performing state pension plans for the 10 years ended June 30, 2020, were the $22 billion Oklahoma Teachers' Retirement System, Oklahoma City, and the $89.9 billion combined defined benefit plans portfolio managed by the Minnesota State Board of Investment, St. Paul, both returning 9.7%. The $3.4 billion Nashville & Davidson County Metropolitan Government Employee Benefit Trust Fund returned 9.6%. All returns cited are annualized figures.
Cliffwater's report showed that by asset class, state plans' U.S. equities returned a median 13.2% for the 10 years ended June 30, 2020; private equity, 12.7%; real estate, 10.7%; international equities, 6.1%; absolute return, 5.2%; and fixed income, 4.6%. For the 20 years ended June 30, 2020, private equity returned a median 9.3%; real estate, 8.8%; U.S. equities 6%; fixed income 5.9%; and international equities 3.8%.
The report revealed that state plans benefited from not being 100% passive. According to Cliffwater, 75% of state pension plans outperformed a 100% passive portfolio that used a 70% global stocks/30% U.S. bonds allocation over 10 years, while 88% of plans outperformed the same passive 70%/30% mix over 20 years.
As of June 30, 2020, the pension plans had an average asset allocation of 46% public equities, 32% alternatives, 21% fixed income and 1% cash. These figures were unchanged from the previous fiscal year.
The average 8.6% return for the 10 years ended June 30, 2020, fell within a wide range of individual pension plan returns (6.7% to 9.7%).