UPDATE 1-U.S. public pensions outperform peers in Q1 - Wilshire

Tue May 7, 2013 2:30pm EDT

By Hilary Russ

May 7 (Reuters) - U.S. public pension funds outperformed their peers in the first quarter of 2013, largely because of their greater exposure to equities assets, data from Wilshire Associates showed.

Public pensions returned a median 5.2 percent in the first quarter compared to 4.77 percent for all the 1,700 funds measured by the latest Wilshire report, to be published on Tuesday.

Public systems also outperformed the 4.25 percent median return of corporate pensions, as well as the 4.59 percent of foundations and endowments, the data from the Wilshire Trust Universe Comparison Service showed.

The higher rate of return on investments for public pension funds was driven by their large holdings of equities, the riskiest asset class, according to Wilshire.

"When U.S. public equities are doing very well, high users [of equities] are going to also do well," said Eileen Neill, a managing director at Wilshire.

In the first quarter of 2013 the Standard and Poor's 500 Index rose by 10 percent. The gains continued in April and May with the index closing above 1,600 at a new record high on Monday.

Public pensions had a median U.S. equities allocation of nearly 44.3 percent in the first quarter, with another 13.4 percent allocated to international equities, Wilshire data show.

That compares with an allocation of 35.96 percent in U.S. equities for corporate pension funds and 34.28 percent for foundations and endowments. International equities amounted to 8.42 percent and 13.63 percent respectively for those vehicles.

In the last few years, many public pensions have actually shifted slightly away from equities towards alternative investments, which can also be risky.

More poorly funded public pensions in particular have taken this route in response to the current, persistently low interest rates, the IMF said in an April report.

In America's weakest public pension funds, allocations to alternative investments grew to about 25 percent of assets in 2011 from nearly nothing in 2001, the IMF said in its latest "Global Financial Stability Report".

The funds' outperformance in the first quarter still would not bring most of them close to their assumed rates of return, which is 7.77 percent on average, according to the National Association of State Retirement Administrators.

Looking back further in time, however, pension funds have met that target. The funds returned a median of 10.19 percent over one year and 8.06 percent over ten years, according to Wilshire.

Critics sometimes focus on poor short-term results, but pension investments should be gauged with a longer-term view in mind, said Wilshire's Neill. "When you're a pension fund, when you have almost a fifty-year time horizon at least, this is a drop in the bucket," she said.

Wilshire's benchmark for institutional asset performance and allocation represents more than $3.4 trillion in assets. including hundreds of public pension funds, the firm said.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.