State pension funds with higher allocations to private markets will underperform their peers with greater exposures to global equities this year, according to a report from the MPI Transparency Lab issued Wednesday.
The MPI Transparency Lab is part of Markov Processes International, a Summit, N.J.-based institutional investment research firm.
The 2023 projections in the report, if accurate, would constitute a reversal of last year's trend, in which pension fund returns were primarily driven by private market exposure as the stock market struggled.
"This year's performance of pensions marks a 180-degree turn from our experience just a year ago," said Michael Markov, co-founder, chairman and CEO of MPI, in a news release. "We know that the dynamics of performance attribution are important, yet most stakeholders lack visibility into these important institutional investors. The rebound in the public markets has certainly helped balance a lack of gains from areas like private equity and venture capital."
Of the 40 state pension funds tracked by MPI, the firm expects to see a median return of 9% this year, slightly lower than the 9.4% return of the global 60% stocks/40% bonds benchmark.
State pension funds with greater exposure to equity markets are projected to have the highest returns this year. According to MPI's study, the $94.7 billion Georgia Teachers Retirement System, Atlanta, with a 74% exposure to equities, will be this year's winner.
The pension fund expected to perform the worst in 2023 is the Oregon Public Employees Retirement System, Salem, which is expected to see gains of 1.8% this year, according to the report.
In 2022, Oregon PERS, with $95.4 billion in assets as of Dec. 31, was a top performer among its peers, reporting a 6.3% gain last year as other pension funds struggled.
Oregon PERS declined to comment.
