Bloomberg News

Public-Pension Return of 7.5% Marks Best Quarter Since 2010

May 02, 2012

Traders work on the floor of the New York Stock Exchange May 1, 2012. Photographer: Spencer Platt/Getty Images

Traders work on the floor of the New York Stock Exchange May 1, 2012. Photographer: Spencer Platt/Getty Images

U.S. public pensions ended the first quarter with a median gain of 7.5 percent, the best performance since 2010, as stocks and real estate boosted returns, Wilshire Associates said.

The retirement plans have recorded a median investment gain of 16.1 percent since the stock indexes reached recession lows in March 2009, the company said in a report today. The median annualized return for the past 10 years was 6.03 percent, according to the survey. The returns don’t include fees.

“You have double-digit equity returns, both domestic and international, this quarter and that comes on the heels of many plans getting an appetite to take on a little more risk,” Robert Waid, a managing director at Santa Monica California- based Wilshire, said in a telephone interview.

State and local government pensions count on returns of 7.5 percent to 8 percent to pay benefits for teachers, police officers and other civil employees. To make up for the losses of the past 10 years, including the bursting of the Internet stock bubble and the financial crisis of 2008, public officials have had to contribute more to pensions, straining municipal budgets.

Estimates of public-pension funding deficits vary from $700 billion to more than $3 trillion, depending on assumptions. States have responded by raising employees’ retirement ages and asking them to pay more into plans.

The report, compiled by the company’s Wilshire Trust Universe Comparison Service, covers about 900 institutional investment trusts, including foundations and endowments, union retirement funds, corporate plans and public pensions.

Taft-Hartley

Union pensions, known as Taft-Hartley plans, had the best performance, returning a median 8.14 percent in the first three months of 2012. Across all funds, the median was 7.42 percent.

The median public pension had 58.3 percent of its holdings in stocks, 25.2 percent in bonds, 2.6 percent in real estate and 5.1 percent in alternative investments such as leveraged-buyout or distressed-bond funds. About 2.7 percent was held in cash.

The Standard & Poor’s 500 index returned 12.6 percent, including dividends, in the first quarter as economic data on U.S. personal spending and consumer confidence topped economists’ projections while concerns about a worsening of the European financial crisis diminished. The index declined 0.8 percent in April as Spain entered a recession and business activity slowed.

Pensions are diversifying by increasing allocations in private equity, hedge funds, real estate and international stocks and bonds, said Waid.

“They’re really spreading their risk versus just being a standard 60/40 U.S. equity, U.S. fixed,” Waid said.

To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net;

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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