Domestic equities and fixed income served large public pension plans well in the fiscal year ended June 30, with many U.S. defined benefit systems seeing returns in line with expectations.
"A heavier concentration in U.S. equities was definitely a tailwind for plans," said Steven J. Foresti, chief investment officer at Wilshire Consulting. "Fixed income also did fine, (while) commodities had a difficult return period."
The median one-year return as of June 30 of the 22 plans tracked by Pensions & Investments through Aug. 14 was 6.66%. Public defined benefit plans in the Wilshire Trust Universe Comparison Service posted a similar median return of 6.62% for the year ended June 30. For large plans (those with more than $5 billion in assets), the median return was 6.69%.
Although the median return for large public plans was the lowest it's been in three years — the median return was 8.94% for fiscal year 2018 and 12.4% for FY17, per P&I data — Mr. Foresti said the average returns for many large public plans hewed pretty close to their expected targeted returns.
Of the 21 tracked plans that provided benchmark data, 13 exceeded their policy benchmark returns. And several of those that lagged did so by only 50 basis points or less. For example, the $101.1 billion Minnesota State Board of Investment, St. Paul, returned a net 7.3%, vs. 7.6% for its benchmark. The $74.8 billion Massachusetts Pension Reserves Investment Management Board, Boston, returned 6.1% gross of fees, below its benchmark of 6.6%. And the $76.3 billion Ohio State Teachers' Retirement System, Columbus, returned 7.13%, 17 basis points below its benchmark.
None of the plans that P&I tracked posted double-digit or negative returns in the most recent year.
Longer term, the plans' annualized returns ranged from 7.5% to 11.26% for the three-year period and 4.2% to 8.5% for five years. Median annualized returns for the respective periods were 9.63% and 6.69%. For the 10 and 20 years ended June 30, P&I's return tracker showed median annualized returns of 9.53% and 6.09%, respectively.